Worst market performance since the financial crisis

Global equities suffered one of the worst years in two decades with inflation and interest rates at record highs and markets anticipating a risk of US and global recession in 2023. The US S&P 500 and Nasdaq declined 19.5% and 33.1% and Canada’s S&P/TSX Composite lost 8.66% in 2022.

The tremendous gains in 2021 were expected to be followed by a market decline, with S&P hitting its all-time high on January 3, 2021. The year was one of the rare years that both stocks and bonds suffered heavy losses. The US 10-year Treasury yield rose to 3.8% from 1.5% in early 2021, which has put pressure on household debt interest rates. An average variable mortgage monthly payment has increased by at least 1000 this year.

Commodities were among the best performers but they rebounded in the second half with the escalating risk of recession and lackluster economic activity coming from China. WTI Oil prices started the year at around 75 and climbed to 125 before ending the year under 80 a barrel.

On the currency side, the Canadian dollar held the ground well against the US dollar throughout the year while other currencies like the Japanese Yen, British Pound, and Euro were crushed. In the second half, however, CAD gave up, and USD traded at 1.36 against the Canadian dollar.

The road ahead in 2023 is not a rosy one either with continued sticky core inflation, hawkish central banks, and lingering risk of recession.