Bitcoin and Nasdaq the worst performing assets in 2022, but some possibility remains
The first month of the second half of 2022 is officially over and the volatility in the markets has not subsided yet.
Meanwhile, the ISM manufacturing index is expected to be released today, August 1, with expectations for the lowest reading since May 2020. The likely prolonged slowdown in the US manufacturing sector could indicate that business investment and consumer spending will slow.
Furthermore, job gains and wage growth are expected to slow down with some sideways movement. Amid the challenges that continue to come for the markets in 2022, Mohamed El-Erian, president of Queen’s College at Cambridge Univerisity, tweeted 31 July, a snapshot of year-to-date (YTD) asset performance compared to the previous two years.
In short, most asset classes in 2022 have been in the red, led by Bitcoin (BTC) and the Nasdaq Index, losing -48.60% and -20.80% respectively. All the while, the correlation between Bitcoin and the Nasdaq index recently hit an all-time high. Oil has been a relatively better performer, gaining over 31% YTD, largely due to the war in Ukraine, while commodities have generally traded volatile in 2022.
Modest return
The shift the Federal Reserve (Fed) made in its policy of tightening financial conditions and reducing liquidity weighs on shares, especially the more speculative ones; nevertheless, most of the earnings that have come out so far have shown some form of growth with cuts in forecasts due to high uncertainty.
This complex interaction between tighter economic conditions, high inflation and acceptable earnings from corporate America may play out for the rest of the year. In turn, that could mean modest returns for investors as growth forecasts could be slashed by companies facing an uncertain future.
A few possibilities
Despite the negativity in the markets, there may be some opportunity in value stocks, as they tend to be cheaper in a recession, and if inflation continues to be high, value stocks historically tend to outperform. Similarly, growing technology stocks, the more established names, have shown solid earnings, which markets have rewarded with less frantic trading and reduced volatility.
Furthermore, as the results of the UK FTSE 100 show, there may be opportunities in Europe and the UK for stocks that have not kept pace with their US counterparts.
All in all, market participants have seen a volatile year so far, but there is a possibility that this will continue, so sticking to a set investment strategy may be the best move to make this year.
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Disclaimer: The content of this page should not be considered investment advice. Investment is speculative. When you invest, your capital is at risk.
