This year has been nothing short of disastrous for investors, unless of course you were among the very few who managed to perfectly time the trade out of growth stocks and bonds and into the small sliver of the markets (namely commodities) that has done well.
Earlier this week, Gary Jackson wrote there were only two Investment Association sectors that had made a double-digit return year-to-date, IA Commodity/Natural Resources and IA Latin America, which is a broad play on the same theme.
Conversely, there have been 15 sectors that have made a double-digit loss, with IA UK Index Linked Gilts down 31.3% on the year so far.
With inflation rampant, it would be understandable at this time of year to become more scrooge-like, particularly as we all will have higher heating bills and food costs – and that’s before you even consider buying presents for loved ones.
Yet, there is some good news. As Jonathan Jones wrote, the ‘Santa rally’ is one of the rare adages in investing that actually seems to hold true: the FTSE 100 index has made an average return of 2.3% in the final month of the year, according to data from AJ Bell looking back to 1984.
There could be signs that this rally has already started. According to Tom Aylott’s story, short-sellers have got in the festive mood by giving under-pressure companies a break. Looking at the short positions in the UK stock market, he found that the number of shares out on loan fell in eight of the 10 most shorted stocks.
Meanwhile, Matteo Anelli wrote that fund flows in November were far better than perhaps expected. Investors actually put money INTO funds over the month, mainly focusing on the fixed income spectrum.
They also put money into equity funds, although there were still withdrawals from UK portfolios as well as those investing in Europe and the emerging markets.
Speaking to Richard Penny, a fund manager at CRUX, there are reasons that this feeling of optimism might continue into the new year, even if the UK and other markets fall into recession (as expected by most).
He argued that markets tend to be six months ahead of the reality, noting that in the recession of 2008-2009, share prices rebounded far quicker and far earlier than the global economy, which was still technically in a recession at the time.
The Federal Reserve will meet next week, with many anticipating that the central bank will slow its rate rises from 75 basis points to 50. This would be a sign that it is ready to concede a bit higher inflation to protect from a brutal recession.
Any positive signs such as this and investors will have to reassess their views and predict far better economic outcomes in 2023 than previously thought.
Of course, if this does not occur, one thing that will play more of a part in the future is dividends, which have been largely irrelevant for more than a decade, but have historically thrived when growth has struggled.
For investors unwilling to take the plunge or make a binary bet, ‘dull’ companies may be the way forward. According to data from Brewin Dolphin this week, there have been stocks outside of commodities that have done well but have been overshadowed. These low-volatility plays have trounced riskier stocks in 2022.
However you invest, or whichever scenario you wish to believe, there is at least some good news in each.