By Shafiq Shabir, Head of Electronic Trading at Intertrader
2022 is the year when many hope and expect the world will finally shake off the worst of the pandemic but the winter months have been a reminder that we are not out of the woods yet. For traders and investors, the road ahead in financial markets remains littered with obstacles that could bring volatility in the coming months.
The trading environment is also changing with the pandemic recovery entering a new phase of low growth, high inflation and continued uncertainty.
As the well-laboured saying goes, “past performance does not guarantee future results”. For the experienced market professionals looking out upon the playing field of 2022, perhaps this disclaimer rings true now more than ever.
1.Are we sliding into a risk-on environment?
The year has begun with a global stock sell-off, after the US Federal Reserve signalled the possibility of faster-than-expected US rate hikes and the withdrawal of financial stimulus, hitting some big-name tech stocks in particular. The great rebound from the market lows of March 2020 had continued in 2021, with growth stocks front of mind for traders, drawing more and more money into the markets.
The jury is out on whether this bullishness can overcome 2022’s early stutter or whether a market recalibration will take place amidst high valuations. With potential central bank rate rises looming and an ever-changing macro picture, stocks could look riskier in the months ahead.
2.Is crypto too big to ignore?
Ethereum, Bitcoin, Shiba Inu and Dogecoin amongst others have consistently garnered interest from traders and speculators, and with new crypto ETFs hitting the main markets, it is unlikely that market interest in crypto will tail off.
Santander Executive Chairman Ana Botin recently said that crypto is the “new big thing” in markets which will no doubt harden crypto-believers’ view that more major institutional plays are coming down the line. A recent sell-off in crypto could suggest that macro hedge funds chasing larger returns have dialled back their positions after enjoying the spoils of crypto gains that their retail clients had experienced in 2021.
Yet there is the lingering fear of incoming regulation, which could cloud thinking about the role crypto will have in a trading portfolio. It seems that regulation is coming, but when and how are the next big questions.
3.Will we see more “HODL” in 2022?
With the pandemic acting as a catalyst for trading behaviour change over the last two years, tailwinds are the talk of financial markets right now. From the transition to electric vehicles to the rise of AR and the metaverse, traders across global markets are contemplating whether they are on the right side of these developments.
Analysing these trends might lead towards a “buy and hold” attitude to trading, making calls on which companies will lead these economic transitions. Further strengthening this buy and hold approach, retail traders are increasingly looking at the long-term returns from crypto as a reminder of the dangers of buying and selling an asset before it realises potential gains.
The rapid increase in first-time traders during the pandemic means there is a whole new group still working out what their approach will be, which could result in a few more conservative “wait and see” traders.