2022 has been a year of unusual, to say the least, whether in the real or financial world. The most unusual for the financial markets has been the fall in Technology companies that saw a meteoric rise in 2020 and 2021. During this year the same companies are down by 28% from the start of the year. And if you look at the energy index then it is up by 67% during the same time.
The contributors to these opposite movements in the two of the largest sectors are geopolitical and economic. First is the rise in energy prices due to the war in Ukraine and the sanctions applied on the energy supplies that are going to tighten further. Second, the tech slowdown is driven by reduced and selective consumer spending that has been the result of higher interest rates along with no further stimulus checks.
As we approach the year's end, the question arises will the next year be the same? It is done to have an exact answer right now but looking at some factors might help in the answer for the first half.
Firstly, the energy supply will be more restricted as the price cap and other measures get applied from this and next quarter onwards. This would result in higher energy prices but it is important to note that the financials of companies will be having higher base as well.
Secondly, the economy will be slowing down by a large extent next year if not going into a more likely recession. This would result in higher inventories and lower new orders, especially in the consumer sector. And signs of this are already visible in recent Flash PMI releases of the USA and Germany where new orders declined at the rate that was last seen during the 2020 lockdown.
Though 2022 has been good for one and bad for another, there is a probability that it might be bad for both.