A Wealth of Common Sense: 5 Lessons From an Awful Year For Financial Markets
2022 was an unusual year for investors. Most likely felt significant pain, given that both stocks and bonds saw double-digit declines. Typically, bonds hold up well when stocks decline. And in years when bonds fare poorly, stocks perform better.
While some may want to simply move on, understanding what happened can avoid pain from a similar situation in the future. Looking at 2022, there are several big lessons.
First, it’s clear that predictions may not always turn out well. Stocks hit a peak on the first trading day of 2022 before trending lower.
Most investors saw the potential interest rate hikes last year as a speed bump amid a strong market. Instead, the size and speed of interest rate hikes ended up fueling a bear market for the first big down year since 2008.
That strong move higher in interest rates also resulted in mortgage rates more than doubling. That’s a significant drag on the cost of home ownership, and may continue to play out with a weak real estate market this year.
Another big lesson is that market leaders don’t stay market leaders. Tech stocks dominated market returns for over a decade. But in 2022, they generally fared worse than non-tech stocks. This lower valuation reflects higher economic uncertainty and higher borrowing costs.