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Month in the Markets: December 2022

A round-up of the latest month in the markets.
'A month in the markets' on top of a green background
Reading time: 10 mins

2022 was a year of many learnings; some old, and certainly some new. Most of all, it serves as a reminder of how difficult investing can be — and how important it is to adopt a consistent, diversified, long-term approach.

Indeed, 2022 saw selected assets plunge dramatically: the price of Facebook shares and Bitcoin both fell by over 64%, for example! While it is never easy to go through short-term periods of negative performance, we are pleased at how our diversified and risk-conscious approach fared against a very challenging backdrop. 

At a Plan level, the complete breakdown in the expected relationship between stocks and bonds has left many scratching their heads. Typically, bonds serve as buffers to short-term periods of negative performance from shares, but this was not the case in 2022, with the UK government bond market falling by 25%. Soaring inflation drove unprecedented central bank interest rate hikes, which sent the lofty prices of both shares and bonds tumbling.

The good news is that, with 2022 behind us, we are more positive going into 2023. Bond yields are now far more attractive, meaning bonds prices now offer decent value for money. For shares, we do think it may get worse before it gets better, so are maintaining a cautious approach to prevent large swings in your Plan value, while looking to add as prices get cheaper.     

The final month of 2022 validated this approach somewhat, with global share markets underperforming bonds and alternative assets. The optimism of November was short lived, however, as most assets ended December in negative territory due to signs of a further weakening global economy, and central banks reaffirming their mission to cool inflation.

Chinese shares bucked this trend, with shares rising strongly as the government announced a swift exit from its highly restrictive policy. 

As was the case for the most of 2022, the fight to get inflation moving towards target continued in December. After a slight easing of tension on the inflation front in November, policymakers reiterated that the pathway to lower pricing pressures was still some way off. Indeed, the US Federal Reserve (the FED) and the Bank of England (BOE) implemented hikes of 0.50%.

While these hikes were expected, they were accompanied by firm message that the recent moves lower in inflation are far from what is needed to signal any easing of interest rates in the near future. This reaffirmation led to shares and bonds giving back the gains from November, as interest rate expectations edged higher. 

In the US, inflation continued its downward trend, decreasing from 7.7% to 7.1%, which was lower than the forecasted 7.3%. While this has provided some encouragement, the US labour market remains incredibly tight, which is pushing up wages. The problem with this is that wage inflation tends to be stickier than goods inflation, with wages very rarely (if ever) negotiated downwards, which can cause ongoing rounds of higher inflation through self-fulfilling expectations.

There are some economic signals that the economy is weakening from very strong levels; while manufacturing activity has continued to soften, the service sector has only recently shown signs of softening. The relatively healthy services sector drove a gain of another 223,000 jobs in December and, given the current status in the labour market, it’s unlikely that we see any near-term shifts down in interest rate policy from the FED. 

In Europe, the state and outlook of the economy continues to be dominated by the energy crisis. These pressures eased further in December, as inflation appeared to pass its peak. Inflation declined from 10.1% to 9.2%, which was lower than the forecasted 9.5%. Soaring food and energy prices are a problem, however, and continue to underpin rising expectations of how high the central bank will raise interest rates, increasing the risk of an economic recession. 

In the UK, data for October (released in December) showed a very slight deterioration in the labour market, with unemployment rising another 0.1% from 3.6% to 3.7%. Both the services and manufacturing sectors remained steady and in line with expectations. Inflation decreased in the UK from 11.1% to 10.7%, indicating that inflation has probably peaked with the energy cap now in place, which is good news to start the year with! 


December saw share markets mostly reverse some of positive returns of November, as market optimism over the potential for looser financial conditions (decreasing US interest rate expectations) on the back of falling inflation, was once again grounded by central banks. 

Developed and emerging market shares posted gains of -4.34% and -1.63% in December respectively, with a strong rise in Chinese shares buffering against losses in other emerging markets. 

Within developed markets, UK shares were again among the top performers, benefitting from more stability and lower starting share prices. The FTSE 100 (-1.60%) and FTSE 250 (-1.62%) were only mildly negative, whilst share prices in Europe (-3.44%), Japan (-5.03%) and the US (-5.89%) ended the month materially lower. 

Emerging markets had another decent month led by Asia-Pacific (-0.67%) which, in turn, were led by the performance of shares in China. Confirmation of the government’s swift exit from Covid-related restrictions provided a window to a potentially more robust and stable economic environment, thereby acting as a catalyst for some sharp price rises. 


The biggest movements in major currencies came from the Japanese yen and the Euro, as expectation of monetary policy shifted. In Japan, the central bank took some small steps to plan for an end to its stimulus program, which saw the pound and US dollar depreciate by 5.08% and 5.30% respectively against the yen.

In Europe, louder calls for greater rate hikes to bring soaring inflation under control, saw the pound and US dollar depreciate by 2.66% and 2.87% respectively against the euro. There was little change in the value of the pound against the US dollar, with relative interest rate expectations remaining fairly static over the course the month.  

Investment type performance breakdown

In our Original Plans, shares (-2.39%), property (-0.75%) infrastructure (-0.46%), and bonds (-1.25%) all ended the month in negative territory, in what was a difficult month for all asset classes. On a positive note, the Plans’ higher allocations to lower risk assets helped relative performance in December. Our healthy allocation to cash, which is a product of our higher than usual caution, added positively to performance.  

We also saw a similar performance in our Ethical Plans, with shares (-3.19%) and bonds (-1.54%) also closing out the month in down against a negative market backdrop. 

Summary with Plan details 

Ethical and Original Plans delivered mildly negative returns across all risk levels in December. It was a difficult month, which saw the positivity of November rebuked somewhat as both shares and bonds ended the month lower. The relatively stronger decline seen in share markets, saw Plans with a higher allocation of them underperform those with a higher allocation of bonds.

Last month, we reiterated our caution despite the strong rebound witnessed in November, and this was rewarded in December with higher levels of safer assets helping relative performance. We expect continued volatility as the market reacts and digests the flow of economic data, which itself has a high uncertainty attached to it. Our Investment Team continues to actively monitor the financial markets and their impact on your Plan and are always ready to act in your best interests to events as they unfold. We are continually evaluating new market information and key market drivers to help keep your Investment Plan on track.  

It’s important to remember that it’s normal for markets to go up and down, with periods of volatility to be expected when you invest. As always, we continue to look for opportunities to position your investments, with the goal of protecting your money and achieving your long-term objectives. 

Please remember the value of your investments can go down as well as up, and you could get back less than invested.Past performance is not a reliable indicator of future results. 

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