4th Quarter Market update

I hope that this first update of 2023 finds you well and that the New Year has been a good one so far. 

Given we have seen so much happen over the last 12 months let alone the final quarter of 2022, in this update I wanted to do something a little different and for you to hear not just from me. 

With the continued exposure of Artificial Intelligence (AI) in the media right now namely with ChatGPT and its real-world applications, I thought we could put this new robot to the test. 

I asked the following question around financial markets, and it provided a reply. Please note I have not changed any contents or spellings here. 

Question: 

“Can you write a rounded financial markets summary for a UK investor for quarter 4 2022 while including world markets

Reply:

During Q4 2022, the financial markets in the UK and around the world experienced a period of continued growth and stability. The UK stock market, as measured by the FTSE 100 index, saw gains of approximately 6%, driven by positive economic data releases, investor optimism surrounding the successful roll-out of COVID-19 vaccines, and the gradual reopening of the global economy. 

The financial and technology sectors were standout performers, while the energy sector underperformed due to ongoing concerns about the sustainability of fossil fuels.

In the bond market, the yield on 10-year UK government bonds increased slightly, rising from around 0.7% to approximately 0.9%, due to a strengthening of the economy and expectations for future inflation. Despite this rise in yields, demand for UK bonds remained strong.

In the global markets, the trend was similar, with many major indices around the world reporting gains for the quarter. 

In the US, the S&P 500 index rose by approximately 4%, while in Europe, the Euro Stoxx 50 index rose by approximately 3%. Asia also experienced gains, with the Nikkei 225 index in Japan rising by approximately 5%.

Overall, the financial markets in Q4 2022 were characterized by stability, low volatility, and continued growth, as investors remained optimistic about the prospects for economic recovery in the coming year. However, it is important to remember that the financial markets are inherently unpredictable and subject to sudden shifts, so it is important to regularly review and adjust one’s investment portfolio accordingly”.

As I asked the question the reply came flooding back in a matter of seconds. I was taken back how quick this reply was generated and its content. 

This was my first question and the conversation carried on from here with me posing further questions and asking for more detail, which it provided. 

However, some of the data is a little off with the FTSE100 up circa 8% and UK gilts at around 3%. 

Digging into this a little more some of the data banks are restricted to 2021 figures so that can muddy things a little. 

The impressive part is the context and speed that this was generated and if the data needed isn’t time sensitive then any content could be created. 

What can be said of this final quarter of 2022 was one of real change with both markets and rates increasing across the board. World markets where a little subdued and the UK did outperform. 

There has been a great deal of hype with regard AI and the new frontier of innovation, and we can see from this simple example here that content creators will now be under pressure when data banks can be brought up to date. 

Creation has always been the holy grail of AI with automation and labour-based tasks being quite far along already. 

This AI is learning all the time and will develop further. We have now seen this tie up with Microsoft and look to be monetised in due course. 

You may well be wondering why I would be covering this in a market update and that’s a very good question. 

In 2020 during covid we saw a mass rush toward technology stocks and green energy as the world stayed at home. 

In late 2021 we moved back to consumerism, dirty energy but technology was here to stay seeing as we all loved home shopping and working. 

In 2022 we moved fully toward dirty energy and technology was now a dirty word, with old world stocks back in fashion making good returns. 

Given these same stocks in 2020 couldn’t be given away, i.e., oil and gas seeing as there was little demand.

In the last 3 years we can see these market cycles playing out in real time as the movements and trends have moved so quickly. These cycles or trends always happen and always will, the trick is being on the right side of the play at that time, which is very hard. 

As we move forward technology will remain to be the driving force for all industry and its hard year in 2022 will be long forgotten in time. AI potentially could be the new hype of investment but in the same respect it also could well be just the start of something like the internet and smartphones. 

The drive toward green energy should have been sustained from 2020 but as 2022 has shown us until such time we secure our own energy needs, we will always import inflation and be at dirty energy’s mercy. 

Gas and oil prices are much lower than their 2022 highs and we are seeing a little of this at the pump but not at home. 

The price cap should come under pressure when the spring and summer comes, but this might not be the case. 

The markets have been very strong since the turn off the year and this is very welcomed. It’s believed that the worst is behind us, and we are seeing the peak in rates, energy costs and inflation. 

We have covered the lag in the change of inflation before and this will take some time to show in official data. 

The UK escaped recession so it seems, and we can see that on the high street and with holiday bookings there is still consumer demand. 

Finally, cash returns are now reducing, I reported back in November of 2-year fixed rate bonds being 4.77%. These are now 4.15% so quite a reduction. 

This can also be seen with mortgage rates as they have come off their highs of late 2022. 

What this means is even with this most recent Bank of England rate increase, providers expect lower rates in the future. 

If you are still looking to secure a fixed rate product of any sort, please act sooner than later as I do predict these to get less competitive. 

As always if you do require any help at all, please just get in touch.