All the Big Market Trends of 2022 Are Now Reversing

We’re only a couple weeks into the new year, but so far 2023 is looking a lot like 2022 in reverse.

Last year was characterized by a surge in interest rates in response to stubbornly high inflation, a stronger dollar and the destruction of frothy meme stocks and the like. But two weeks into 2023 and the story is pretty much the opposite.

Here’s a rundown of what’s changing.

The dollar’s big surge was described as a wrecking ball ruining everything. Now the Bloomberg dollar index is back to a level last seen around June 2022.

That’s helping lift the popular 60/40 allocation mix of stocks and bonds, with a hypothetical portfolio now experiencing the best start to a year since 1987, according to Bloomberg Markets Live strategist (and former Odd Lots guest) Cameron Crise

Tech stocks, battered and mocked, are outperforming the S&P 500 again.

Crypto trades a lot like tech, and so naturally the coins are bouncing. Solana, the one big coin that is probably most associated with the SBF universe, has roughly doubled from its December lows.

A weaker dollar has helped push gold prices up almost 5% so far this year, after the annus horribilis that was 2022.

Meanwhile, the market’s expectations for inflation as measured by breakeven rates has also been ticking down, though much of that trend started late last year.

Meme stocks were a huge story in early 2021 then got smashed by higher interest rates in 2022. In the first two months of 2023, however, they’re showing some signs of reviving — with shares of poster meme stocks like GameStop Corp., Bed Bath & Beyond Inc. and AMC Entertainment Holdings Ltd. rallying in recent days.

Chinese assets have not performed particularly well during the global pandemic with country’s authorities cracking down on everything from real estate to internet stocks. Now all that is quickly reversing as China eases Covid-19 restrictions and stimulates its economy.

For years, copper has had this reputation for being a proxy of the global economy, which is why they used to call it Dr. Copper. You don’t hear that quite so much anymore. But thanks to the Chinese reopening, positive momentum in the US and elsewhere, it may be performing that role again. Its rally took a breather through much of 2022. And then started picking up again in the second half. Now it’s breaking out again.

All that risk-on appetite means we’re seeing investors once again dive into the frothiest parts of the market, with a hypothetical bubble portfolio full of Chinese real estate, Bitcoin, Tesla and other tech stocks up more than 10% in 2023 after getting absolutely crushed last year

Of course, it’s still early days and a big question is the degree to which all these reversals will feed into a material loosening of financial conditions at a time when Federal Reserve officials are still ostensibly fighting inflation. 

But for now, the first two weeks of 2023 look pretty different to the whole of 2022.