The MSCI All-Country World Index is a stock market index which tracks close to 3,000 stocks across 48 developed and emerging market economies. It is as close to a global stock market proxy as we can get, and hence looking at its returns gives a good picture of how life has been for equity investors.
Since 1987, the index has returned an average of 8.24%. The stout number shows the power of passive long-term investing. But that number is an average, and the year of 2022 was anything but average. Rampant inflation, a war in Europe and a transition to a high interest-rate environment has served to pull markets down drastically.
Global stocks lose $18 trillion in 2022
This year, the index dropped 20% as nearly $18 trillion was wiped from global stock values. It is the worst fall since 2008 when it slid more than 43%.
Will returns be negative again in 2023?
Shifting focus to the S&P 500, which remains a strong proxy for the stock market and for which we have a larger sample of data, we can look back over the last century to assess how common we see consecutive years of negative returns.
Only twice in the last 80 years have we seen consecutive years of negative returns. The first was 1973/1974 when the index yielded -17.4% and -29.7% respectively, and then again in 2000, 2001 and 2002, when the index fell 10.1%, 13.0% and 23.4% respectively.
So while consecutive years of negative returns are unlikely, it is not unheard of. Besides, the current environment is totally unique – perhaps only the 70s offers somewhat of a reasonable comparison – in that we are fighting high inflation with aggressive rate rises amid a global energy crisis.
A further look into how unique the environment is given when layering in the bond market. Only five times in history has the S&P 500 and the 10-Year Treasury Bond fell in the same year: 1931, 1941, 1969, 2018 and 2022.
Further accentuating the shock that was 2022 is the fact that never before have both these metrics fallen by greater than 10%. Both the stock market and bond market got completely ravaged this year, and that is something that we almost never see.
Which indexes performed best in 2022?
It was an ugly picture across the board in 2022. The European Stoxx 600, which captures about 90% of the market capitalisation of the European market in 17 countries, slid nearly 13%. The German DAX was similar, down 12.3%, while the French CAC 40 dropped 9.5%.
The FTSE 100, however, sticks out with a small gain of 1.2%. The British index weathered the storm of three prime ministers and a suffocating cost-of-living crisis last year. However, this may not be representative, with commodity-linked gains pushing the index upward, as well as an extremely weak sterling boosting sales in what is a very export-heavy index.
Otherwise, there is not much positivity to pick from. Asian stocks were similar, with both the Hong Kong and Chinese indexes cratering, with the latter fighting the additional battle of strict lockdowns and disruptive protests throughout the year.
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