With the 2022 numbers in the books, let's take a step back and have a look at the major developments in the Longtermtrends charts.

2022 turned out to be a very difficult year for investors. Most major asset classes closed off the year with red numbers including US stocks (-19.44%), corporate bonds (-15.45%), emerging markets (-22.37%), real estate (-24.32%), gold (-0.43%), and bitcoin (-64.34%).

According to Bloomberg & Lombard Odier (via Maverick Equtiy Research), since 1926 it only happended 3 times that both stocks & bonds closed the year with negative returns: 1931, 1969, and 2022!

According to Goldman Sachs, the popular 60/40 portfolio was down -15% in 2022, which made it the 7th worst year on record. However, subsequently to a negative year, the portfolio rebounded in 9 out of the 10 of the following years with a median return of +17%. The only exception was the year 1931 during the great depression.

The year was marked by a sharp rise in yields to combat inflation. With short-term yields rising faster than long-term yields the Yield Curve inverted to its lowest level since the 1980s. While positive spreads imply future growth, an inverted yield curve is generally considered to be a predictor of an economic recession.

Inflation peaked in June at 9.06% and then reversed, following the M2 money supply growth rate, which is about to turn negative for the first time since 1933.

With rising interest rates and falling inflation expectations, real yields rose, which was negative for gold prices.

Credit spreads remained low except for mortgages, for which they peaked in November and reached the highest level since the 1980s.

Looking at different valuation metrics for the US stock market, since December 2021 the Dividend Yield rose along with other interest rates and reached 1.71%, the PE Ratio fell to 19.89, the Shiller PE Ratio to 27.96, and Market Cap to GDP fell to 148.01%.

The fall in US stocks was driven by Growth stocks in the Nasdaq, which are more sensitive to rising yields and discounting future cash flows. According to Maverick Equity Research, more than half of the decline (-10.06% / 1,006 basis points) was due to just 7 stocks: Tesla, Meta/Facebook, Apple, Nvidia, Microsoft, Amazon and Google.

Looking at US stock market sectors we see a great dispersion with a spread of over 100% between Energy and Communication Services. In general, the defensive sectors (Energy, Utilities, Consumer Staples, and Health Care) outperformed cyclical sectors (all other sectors, see page 4).

Examining the US stock market in even more granularity, we find the 2022 winners inside the S&P 500 using a scatterplot by Maverick Equity Research. Overall, 365 stocks closed the year with a negative return. 198 stocks had a return of -20% or lower and 26 stocks even had a return worse than -50% (~5% of the index).

Small-cap stocks barely outperformed large-cap stocks in 2022 and opened up a gap to inflation expectations. However, even though small-cap stocks have outperformed large-cap stocks during periods of high inflation, such as the 1970s, Aswath Damodaran cautions against generalizing this finding to today’s markets.

Commodities as measured by the Producer Price Index peaked in May 2022 and then declined for the rest of the year. Looking at the asset class in more detail we can see that Commodity Prices normalized, including for Natural Gas, Base Metals, and for Grains.

Internationally, the US stock market slightly underperformed the (aggregate) rest of the world in 2022. However, Emerging Markets still kept underperforming developed markets.

Looking at a comparison of national stock markets in USD terms, all stock markets are down in 2022, except for Turkey (with an impressive +111.04% performance), Argentina, Chile, Brazil, and Singapore (+4.85%).

Finally, 2022 turned out to be a disastrous year for crypto. Bitcoin & Ether are down 64 and 67 percent respectively - and Coinbase is down over 90% from its all time high. The industry was shaken up by the collapse of FTX and Terra/Luna (see May issue), which cost investors billions. In the aftermath of this debacle, calls for regulation are getting louder.

This month's newsletter is sponsored by Green Crypto Research. Green Crypto Research (GCR) is a non-profit association based in Zug, Switzerland, that specializes in evaluating the sustainability of cryptocurrencies. The organization was founded in May 2021 and developed the world's first and to date only ESG rating for cryptocurrencies. With that, GCR enables professional investors, asset managers and crypto exchanges to offer sustainable crypto solutions to their clients.

Special thanks to ​Maverick Equity Research for contributing to this months issue!​​​ I highly recommend subscribing to his substack.

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Thanks for reading and have a nice day!