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BOOK YOUR FREE STRATEGY SESSION NOW >>Wondering what happened in the markets in 2022? Then you are in the right place!
In this video, we analyze the movements of the most important asset classes, take a look at volatility, and try to figure out what to expect in 2023...
By watching the video, you’ll find answers to many questions, including:
-By how much did the major markets move last year?
-Why was 2022 so difficult for traditional investment portfolios?
-Where did the impressive +957% annual increase in Heating Oil come from?
-Is there hope for recovery in the crypto world?
This is a video you won’t want to miss!
Hey everyone, and welcome! One of the coaches at Unger Academy here and this is the overview that we do every weekend about the performance of the markets.
As we approach the end of the year, what better time to take stock together and evaluate the performance of the markets over the past year?
Okay, so, as we all know, 2022 was a bit of a strange year for the markets.
We’ve seen a year that’s certainly been very volatile, so with big moves in different asset classes, so we've seen a lot of volatility, and at the same time, it was also a terrible year for the two main asset classes that fill the portfolios of all investors.
I’m of course referring to stocks and bonds.
In my opinion, two main causes have produced this particular financial year. Causes, moreover, that are interrelated.
I’m obviously referring to inflation. I mean, we've seen inflation the likes of which we haven't seen in over 30 years, and that, of course, has triggered the reaction of the Central banks. Initially, the Central banks thought that this was a transitory event and decided to chase inflation by raising interest rates. In turn, this led to a decline in stock and bond prices.
The second aspect was I mean certainly the war between Ukraine and Russia. This was another element of tension that caused Central banks to tighten their market measures and worsen an already weak-looking economic cycle.
So, at this point, I’d like to take a look at the numbers, starting as usual with the equity indexes.
We see that the Nasdaq is the first one to fall, down by about 34% from the beginning of the year until now, followed by the Mini SP 500 with a -20%, Dax -12%, and the Eurostoxx -9%.
And here I’d like to make an observation. If you remember, most traders and reports at the beginning of the year, especially after the outbreak of the war, advised underweighting the European equities precisely because of the proximity of Russia and Ukraine to Europe.
However, these predictions proved to be wrong, and we saw a significant “outperformance” of European markets versus the U.S. markets. This was definitely due to a stronger action by the Fed in the markets than ECB, which we know generally ends to lag behind the Fed most of the time.
Finally, I’d like to point out that we haven’t had such a bad year in the stock markets since 2008. A -35% drop in the U.S. technology index is a surprise, and very few traders had predicted such a scenario.
And then, of course, let’s not forget bonds. Let's have a look… we can see that bonds have lost -21.8% over the last year, I’m referring to the 30-year U.S. bond.
The European Bund lost -18.50%, and the U.S. 10-year bond lost -13.90%.
Let's also take a look at the chart trend. This is the T-Bond, and this is the Bund. I mean, truly a debacle on all fronts, because if you think about it, most of the traditional financial and portfolio models are based on a mix of these two asset classes, which normally tend to offset each other in the course of the years since generally there is some decorrelation.
And you’ll certainly understand that this has been a truly terrible year for all investment portfolios, except for the few who were able to liquidate their positions and stay in cash or straddle any surge, no matter how sudden, in the commodities, particularly in the energy commodities.
And so… let’s turn now to the energy market.
We saw that RBOB Gasoline is growing by +92%, Heating Oil, +957%. And Crude Oil? +25%.
Obviously, this performance of Heating Oil is due to the fact that in Covid times we’ve seen negative prices for this future, and also, because of the rollovers on this instrument, prices were very close to zero in early 2022. Okay? So it is a trend that isn’t real. This increase of +900% is also due to the aspect of rollovers that we all know. Anyway, that doesn’t change the fact that it was still an underlying asset that really went up a lot.
Finally, I’d like to point out the performance of Natural Gas, which has been talked about so much this year because of the tension due to the war between Russia and Ukraine. At the moment, Natural Gas is showing a negative one-year return. Slightly, but it’s still negative.
We’re obviously talking about American Natural Gas. There are still problems in the European market. The price is still much higher than it was a year or two years ago.
However, much of the upswing, which also weighed on the economy and politics, has receded and the situation seems to be returning to normal.
Turning to the metals sector, we see slightly positive one-year returns for Silver, +13% for Platinum, negative returns for Copper at -13%, and close to zero for Gold.
What we can see, however, is that there has been a trend reversal recently. This is a market that has been weak for a long time, we've said it repeatedly, but it seems to be showing a sign of recovery just in the last few months of the year.
The livestock market... There's not much to say here, except for Lean Hogs gaining +10%, while Live Cattle and Feeder Cattle are essentially close to zero.
On to soft commodities, we definitely have Orange juice, with a one-year return at +82%. We know that this market is currently in a strong uptrend. -22% for Coffee and… well, not too much else to report.
There were also tense moments in the Grains sector when the war broke out. However, we have seen that Wheat has recovered from those levels. In fact, its returns are down about -10% right now.
However, Soybeans and their derivatives have certainly had an excellent year, +40% for Soybean Meal, +36% for Soybean, and +49% for Bean Oil.
Finally, the foreign exchange market, which, as we all know, has been characterized by the strength of the U.S. Dollar against all other currencies, especially against the Yen and the British Pound. But as we all know that from the lows of late September until today, there has been a reversal of the trend.
Last but not least, Bitcoin, which we know has had a very horrible year, and we see a return of -65%. I know it hasn’t been the worst year for Bitcoin; we’ve seen even bigger drawdowns in the past. However, this drop has reached a magnitude and strength that few predicted in 2022.
If you think about it, the entire cryptocurrency market is in crisis. The most significant events this year were the default of the FTX exchange and the debacle of the Terra-Luna ecosystem that occurred even before that.
There is undoubtedly still a very long way to go. The cryptocurrency market is still weak. However, we’re approaching the halving of Bitcoin. The market tends to move quite early. It’s still quite a while away, but 2023 could be the year of recovery for the cryptocurrencies.
Finally, let's have a look at the implied volatility term structure, which, as we all know, is an excellent thermometer of the health of the equity markets, the equity markets.
As you can logically imagine, we’ve seen spikes in volatility, then spikes in volatility again, but with small backwardation periods. And that’s quite surprising really because, as we’ve already seen, it’s been an awful year for equity markets. However, we’ve had what can be described as an “orderly” descent without excessive panic in the markets.
The VIX rarely approached the level of 40. We saw a value of 39 at the beginning of the year, otherwise, the maximum value that the VIX reached is around 35.
Now I'm not going to hide from you that this leaves me well, a little bit perplexed and also a little bit anxious, because often markets go through a period of capitulation before they recover, where we tend to see VIX at really high levels. And this hasn't been the case so far, and as I said, I have my doubts. We'll wait and see.
Turning to the rollover calendar, as you can see, we don’t have anything in the pipeline for next week, so a break as far as rollovers are concerned.
Finally, guys, I’d just like to take this opportunity to leave you with some advice. If there’s someone among you who's interested in learning more about systematic trading and specifically the Unger Method that we teach here at the Unger Academy, then I have an interesting resource for you and I'm going to leave the link in the description of this video.
If you click on the link, you can watch a free presentation by Andrea Unger, who will introduce you to his trading method, with which he managed to win the World Cup Trading Championship four times.
You can also get the best selling book "The Unger Method," covering only the shipping costs, or you can even book a free strategy consultation with one of our tutors.
Guys, that is it for today, that is it for the year!
I leave you with my best wishes and of course a very happy end of the year.
And finally, I'd just like to remind everyone to please subscribe to our channel, click on the notification bell, and if you enjoyed this video, please also leave us a like!
I wish everyone a great end of the year, and we will see you soon next time! Bye bye!
We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.
