Friday was the last day of 2022, and US stocks ended the year down. This capped a year of big losses caused by aggressive interest rate hikes to stop inflation, fears of a recession, the war between Russia and Ukraine, and rising concerns about COVID cases in China.
Wall Street’s three main indexes had their first annual drop since 2018 as the Federal Reserve raised interest rates at the fastest rate since the 1980s. This was the end of an era of loose monetary policy.
This year, the market cap of the S&P 500 (.SPX) has dropped by 19.4%, or about $8 trillion. The tech-heavy Nasdaq (.IXIC) is down 33.1%, while the Dow Jones Industrial Average (.DJI) is down 8.9%.
All three indexes had their biggest annual percentage drops since the 2008 financial crisis. This was mostly due to a sell-off in growth stocks as worries about the Fed’s fast rate hikes pushed up US Treasury yields.
Sam Stovall, chief investment strategist at CFRA Research, said, “The main macro reasons came from a combination of events: the ongoing disruption of the supply chain that began in 2020, the rise in inflation, and the Fed’s delay in starting its rate-tightening programme to try to bring down inflation.”
He also talked about economic signs that point to a recession, geopolitical tensions like the war in Ukraine, rising COVID cases in China, and questions about Taiwan.
Since the beginning of 2022, rising yields have put pressure on growth stocks. As a result, growth stocks haven’t done as well as their economically linked value peers, reversing a trend that had been going on for most of the last 10 years.
Apple Inc. (AAPL.O), Alphabet Inc. (GOOGL.O), Microsoft Corp. (MSFT.O), Nvidia Corp. (NVDA.O), Amazon.com Inc. (AMZN.O), Tesla Inc. (TSLA.O), and Amazon.com Inc. (AMZN.O) are among the companies that will hurt the S&P 500 growth index (.IGX) the most in 2022, with losses between 28% and 66%.
This year, the S&P 500 growth index is down about 30.1%, while the value index (.IVX) is down 7.4%. Investors like sectors with steady earnings and high dividend yields, like energy.
As oil prices went up, Energy (.SPNY) had a great year, gaining 59%.
On Friday, ten of the eleven S&P (.SPX) sector indexes went down, with real estate and utilities leading the way.
J. Bryant Evans, an investment advisor and portfolio manager at Cozad Asset Management in Champaign, Illinois, said, “The housing market has really slowed down, and the values of people’s homes have gone down from their highs earlier this year.”
“That changes the way people think and has a small effect on how much they spend.”
The focus has shifted to how companies will make money in 2023, and worries about a recession are growing.
Still, signs that the US economy is holding up have made people worry that rates might stay high. However, easing inflationary pressures have given people hope that rate hikes might slow down.
Money market participants think there is a 65% chance that the Fed will raise rates by 25 basis points at its meeting in February. Rates are expected to reach a peak of 4.97% by the middle of 2023.
The Dow Jones Industrial Average (.DJI) fell 73.55 points, or 0.22%, to 33,147.25; the S&P 500 (.SPX) fell 9.78 points, or 0.25%, to 3,839.50; and the Nasdaq Composite (.IXIC) fell 11.61 points, or 0.11%, to 10,466.48.
The number of shares traded on US exchanges was 8.50 billion, which was less than the average of 10.79 billion for a full session over the last 20 trading days.
On the NYSE, falling stocks were 1.5 times as common as rising ones, while on the Nasdaq, falling stocks were 1.03 times as common as rising ones.
There were no new 52-week highs or lows in the S&P 500, but there were 85 new highs and 134 new lows in the Nasdaq Composite.
