Stock Market: A Final Look Back at 2022

Gordon Pape | January 17th, 2023

Gordon Pape takes a look back at his 2022 stock market predictions, from the affects of high interest rates to instability caused by war. Photo: Tackey/Getty Images

I’ve always suggested that readers take all predictions with a grain of salt. There are so many variables in play at any given time that any forecasts can be quickly thrown off track.

That said, I took a look back at my comments in the issue of Jan. 3, 2022 about the year to come. I wrote: “The stock market will face increased pressure in 2022 and, at some point, investors are going to relearn that there’s a direction other than up.”

Among the headwinds I discussed were interest rate hikes, inflation, and overvaluation in the housing market. I also was concerned about war, saying: “No one wants to envisage this, but China’s increased harassment of Taiwan and Russia’s troop build-up on the eastern border of Ukraine are keeping some diplomats awake at night. A conflict involving one or more of the world’s superpowers would send stocks tumbling.”

As a result, my guidance to readers was:

Avoid high risk stocks. I suggested sticking with blue chips like utilities, banks, and telecoms. All of those sectors lost ground during the year, but these are strong companies that will recover, and they continue to pay healthy dividends. I did not mention energy, which turned out to be the top performing sector by far due mainly to the war in Ukraine.

Take some profits. I suggested if you were overweight in any sector, including technology, take some money off the table.

Review your asset mix. My comment was: “Ask yourself how your portfolio would fare in the event of a sharp market sell-off. If you aren’t comfortable with the answer, reduce your equity exposure.”

Be cautious with bonds. I wrote that interest rate hikes would continue the downward pressure on bond prices in 2022. We ended up with the worst bond bear market in four decades.

The bottom line, I suggested, would be a steep stock market drop in the 10-15 per cent range in the first quarter, followed by a rally that would result in a full-year gain in the single digit range by Dec. 31.

In fact, the major decline was delayed until spring and I underestimated the impact of the headwinds when it happened. While there were rallies along the way, the markets continued to trend down from late March. The final score was the tech-heavy Nasdaq off 33.1 per cent, the S&P 500 down 19.4 per cent, and the Dow losing 8.9 per cent. It was the worst year for US stocks since 2008.

Our own S&P/TSX Composite fared better, losing 8.7 per cent thanks to the strong weighting in energy stocks. As for bonds, the less said the better. The FTSE Canadian Universe Bond Index ended the year with an 11.7 per cent loss.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe

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