Our Perspective.
Given that for the best part of 14 years investors had effectively had their “hands held” by central banks, it is understandable that the events of 2022 should have affected confidence quite so badly. Coming off very extreme valuation levels both bonds and equities were clearly ripe for a correction, and 2022 duly obliged.
But humans, being the emotional creatures that we are, tend to see the start of a New Year as a “good” reason (excuse) to be optimistic and any number of narratives are usually put forward to help justify this more positive outlook. This year the bullish narrative was predicated on the argument that, having raised interest rates during 2022 at the fastest pace in recent history (see below), the Federal Reserve in the US was therefore most probably close to ending this cycle of rate rises and might even start cutting rates by year end. Investors persuaded themselves that this prognosis was very credible and as a result January saw a very sharp rally in most risk assets, with those shares/sectors which had suffered most in 2022 being those that benefited most during the first few weeks.
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