Stock Exchanges: the stock markets of 2022

The return of war in Europe after more than 75 years and the arrival of hyperinflation, with prices rising in November to 7.1 percent in the United States and 10.1 percent in the European Union: these are two factors for which 2022 will be remembered, a year in which there has also been a marked change of course by central banks. The latter, precisely to stop the price flare-up, raised interest rates again, pushing stock and bond markets into the abyss, despite the fact that global GDP growth estimates, while remaining lower than at the beginning of the year, indicate a marked slowdown and not a recession in the global economy

But what have been the winners and losers in this "annus horribilis" of finance? "To date, all major world indexes are largely in negative territory, and not even a strengthening of about 7 percent in the U.S. dollar has been able to contain the decline within double-digit negative," says Luca Longhi, head of Total Return Management at Banca Generali, who adds, "Analyzing the various listings, we find many correlations and similarities, not only in terms of performance but also among the sectors that have benefited or been most penalized in this particular geopolitical and macroeconomic environment."

The real, and few, winners in this context, Longhi reminds us, are the energy companies (in fact, the Oil&Gas sector in Europe scores +23%). Companies in this sector have seen their profits explode thanks to the soaring cost of gas and oil following sanctions on Russia and thanks to a continued increase in demand due to the post-pandemic restart of global trade activity. Another sector that has been favored by the Ukraine-Russia conflict is the Defense sector, represented by many European companies such as Dassault Aviation, Thales and Rheinmetal.

"On the other hand," adds the head of Total Return Management at Banca Generali, "there are many sectors that have been penalized this year." Longhi cites in particular the technology sector, which has been consistently underperforming the global index for 2 years now. In Europe, among the most underperforming sectors we also find Real Estate (-40%) with companies such as Vonovia, Germany's largest real estate company having problems refinancing its debts due to rising rates. Not forgetting the retail sector (-34%) where the appeal to investors continues to shrink due to increasingly shrinking numbers.

Moving to the Italian market, we see that the FtseMib index has almost always underperformed the European market, except for the last quarter where it recovered thanks to the 'important contribution of Enel and Intesa Sanpaolo. In Italy, as in the rest of the world, the few companies in the positive since the beginning of the year are attributable to the Energy sector with Eni (+13%). and Defense with Leonardo (+25%).

"Despite the poor performance generated so far," Longhi points out, "third-quarter profits were better than expected in both the United States and Europe, with earnings per share growth of 22 percent year-on-year in Europe."  Banca Generali's head of Total Return Management also points out that, for 2023, "the economic scenario forecast by the main international bodies does not see a global recession as the most likely scenario, but rather a significant slowdown in growth for the economy.  The latter will be highly diversified across geographies, and some countries could even experience a recession, while in others the appropriate and judicious combination of monetary and fiscal policy could foster better resilience."

In contrast, the world's most important financial center, namely the U.S. stock market, is set to close 2022 with losses in the range of about 20 percent in local currency terms. For European investors, the decline partially calmed by the rise of the dollar, which has gained more than 6 percent since the beginning of the year.  Much more pronounced was the decline in the Nasdaq, the market for technology stocks, which fell more than 30 percent.

In short, 2022 has undoubtedly been a black year for the hi-tech sector in the stock market. More in detail stocks such as Intel and Amazon have suffered losses of more than 40 percent since January 2022. Tesla, which in the past, had been able to support the stock markets thanks to its capitalization, has instead lost about 50 percentage points since the beginning of the year.

Also in the United States as in Europe, best sector of the year was the energy sector thanks to the price of oil remaining throughout 2022 and significantly higher levels than the previous year. Brent crude has traded at an average of $100 over the past year compared to $70 the year before. Corporate earnings in the S&P 500 Index will grow close to 5.1 percent this year while sales are expected to grow 10.4 percent.

Also in the United States, as in Europe, there has been a tightening of interest rates, but more decisively than in the Old Continent. The Federal Reserve has intervened with seven hikes, the latest of which was 50 basis points,still showing determination in the fight against inflation" and hinting at further hikes in 2023. "These rises have contributed to a slowdown in inflation with the consumer price index (CPI) falling from highs of 9 percent in June to 7.1 percent in November," says Corrado Cominotto, head of Active Asset Management at Banca Generali, who adds a forecast for 2023: "For next year, it is realistic to think that the U.S. stock market can benefit from the contraction of multiples that has taken place since the beginning of 2022, given that today the price-to-earnings ratio is 17.40x, compared to 21x at the beginning of the year. Regarding sectors; Cominotto concludes, "in 2023 both growth and value stocks could have catalysts. The former thanks to the Federal Reserve pivot expected around the summer; the latter thanks to valuations still at a discount to the market average."