2022 was certainly a volatile year across the world. We saw crises with respect to food shortages, climate, war, the impact of Brexit, the EU energy crisis, inflation and economic growth, cost of living and of course the legacy of the Covid-19 pandemic. We seemed to move from one crisis to the next and this had a massive effect on global stock market performance. Global events often have a huge effect on global markets – it’s something we hear a lot but what does it actually mean?
Here at OMFS, we don’t believe in jargon so here’s the simple version. Markets are built on trading and investing, and this is done by investors. Trading and investing can be affected in two main ways – reacting to things that have happened and reacting to things that might happen. Traders and investors tend to reduce their level of activity if their preferred stock has been impacted by something that has happened or the speculation that something will happen. These also directly affect supply and demand. When there isn’t enough (or we think there isn’t enough) of something the price goes up. This causes a surge in production which means the product is more available, but as the price has already increased, the demand is just no longer there. So what did all this mean for 2022?
Markets at the end of 2021 were performing really well. This was mostly due to the collective sigh of relief that swept across Europe and the wider world as Covid restrictions were eased. A continuous high level of growth throughout 2021 meant that demand was constantly increasing, but as outlined above, this will eventually abate (this is called a market correction). At the beginning of 2022, the markets began to naturally correct themselves, but as normal life began to resume, the real effects of the increased cost of living, fuel prices and energy shortages suddenly became very apparent. Investors grew very uneasy and markets began to fall. On the 24th of February 2022, Russia invaded Ukraine which sent investors into a panic as war descended on Europe for the first time in almost 70 years. Western countries imposed sanctions on purchasing oil from Russia and businesses across every sector faced increased overheads as they battled to recover from the shock of the pandemic. Markets were negatively impacted by what had already happened but even more so by the uncertainty of what could happen next. This proves that markets may often be dictated by “sentiment”, as much as the actual facts on the ground.
Although there were a lot of events which sparked the falling markets of 2022, these will all eventually be resolved. New events (speculative or otherwise) will occur and these too will be resolved – such is the nature of global economics. January 2023 has already seen a rise in markets as investor uncertainties are slightly appeased. So what does this mean for you as an investor or trader? The important thing to note is that history has proved markets will always rise more than they fall in the long term. Significant market events such as Inflation surpassing 20% in the 1980’s, the bursting of the dotcom bubble and 9/11 in early 00’s and the global economic crash of 2008/09 all had detrimental consequences on markets at the time. Detrimental they may have been, but certainly not fatal or catastrophic.
The old adage, “it’s not about timing the market, but about time in the market,” has been proven true over the years. Research shows that those who stay invested over the long run in a well-diversified portfolio will generally do better than those who try to profit from turning points in the market. As an investor, the timeframe you have available to invest your funds will impact directly on the level of risk you should take. If you are not comfortable with sticking to a long-term investment plan even during the inevitable lows then maybe investing in markets isn’t for you. It isn’t for everybody, but there are still ways you can save for the short, medium or long term without investing uncomfortably. The right direction towards savings and investment is very important in this journey Let us know if we can help by clicking here.