A man cycles past monitors displaying Japan’s Nikkei 225 index at a securities firm in Tokyo on Friday. Asian stock markets followed Wall Street higher on Friday after encouraging U.S. jobs data but were heading for double-digit losses for the year. (Hiro Komae, Associated Press)
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NEW YORK — Wall Street ended a quiet trading day with more losses on Friday as it closed the book on the worst year for the S&P 500 since 2008.
The benchmark index ended with a loss of 19.4% for 2022, or 18.1% including dividends. It’s only its third annual decline since the financial crisis 14 years ago and a painful turnaround for investors after the S&P 500 posted a nearly 27% gain in 2021. , the index lost $8.2 trillion in value, according to S&P Dow Jones Indices.
The Nasdaq composite, with a strong component of tech stocks, posted an even bigger loss of 33.1%.
The Dow Jones Industrial Average, meanwhile, posted an 8.8% loss for 2022.
Equities have struggled throughout the year, with inflation putting increasing pressure on consumers and raising concerns that economies are heading into recession. Central banks have raised interest rates to combat high prices. The Federal Reserve’s aggressive rate hikes remain a major concern for investors as the central bank vacillates between raising rates enough to calm inflation, but not enough to lock the US economy into a recession.
The Fed’s key rate was in a range of 0% to 0.25% at the start of 2022 and will end the year in a range of 4.25% to 4.5% after seven hikes. The US central bank expects it to reach a range of 5% to 5.25% by the end of 2023. Its forecast does not call for a rate cut before 2024.
Rising interest rates prompted investors to sell the high-priced shares of tech giants such as Apple and Microsoft as well as other companies that have prospered as the economy recovered from the pandemic. Amazon and Netflix have lost around 50% of their market value. Tesla and Meta Platforms, Facebook’s parent company, each fell more than 60%, their biggest annual declines on record.
Russia’s invasion of Ukraine added to inflationary pressure early in the year by making oil, gas and food prices even more volatile amid existing supply chain issues. Crude closed around $80 on Friday, about $5 higher than at the start of the year. But meanwhile, oil surged above $120, helping energy stocks post the only gain among the 11 S&P 500 sectors, up 59%.
China has spent most of the year imposing strict COVID-19 policies, which have hampered the production of raw materials and goods, but is now in the process of removing travel and other restrictions. It is unclear at this stage what impact China’s reopening will have on the global economy.
The Fed’s battle with inflation, however, is likely to remain Wall Street’s biggest concern in 2023, analysts say. Investors will continue to focus on whether inflation is slowing fast enough to relieve pressure on consumers and the Fed.
If inflation continues to show signs of easing and the Fed resumes its rate hike campaign, that could pave the way for a rebound in equities in 2023, said Jay Hatfield, CEO of Infrastructure Capital Advisors.
“The Fed has been the overhang in this market, really since November of last year, so if the Fed takes a break and we don’t have a major recession, we think that sets us up for a rally,” a- he declared.
The Fed has been the overhang in this market, really since November of last year, so if the Fed takes a break and we don’t have a major recession, we think that sets us up for a recovery.
–Jay Hatfield
There was little corporate or economic news for Wall Street to consider on Friday. That, plus the holiday-shortened week, paved the way for mostly light trading.
The S&P 500 lost 9.78 points, or 0.3%, to end at 3,839.50. The index posted a loss of 5.9% for the month of December.
The Dow Jones lost 73.55 points, or 0.2%, to close at 33,147.25. The Nasdaq slipped 11.61 points, or 0.1%, to 10,466.48.
Tesla rose 1.1% as it continued to stabilize after steep losses earlier in the week. The electric vehicle maker’s stock fell 65% in 2022, wiping out around $700 billion in market value.
Southwest Airlines rose 0.9% as operations returned to relative normality after massive cancellations over the holiday season. The title still ended down 6.7% over the week.
Shares of small companies also fell on Friday. The Russell 2000 fell 5 points, or 0.3%, to close at 1,761.25.
Bond yields are mostly pink. The 10-year Treasury yield, which influences mortgage rates, rose to 3.88% from 3.82% on Thursday evening. Although bonds generally do well when stocks crash, 2022 has proven to be one of the worst years for the bond market in history, thanks to rapid Fed rate hikes and inflation. .
Several major job market updates are on the agenda for the first week of 2023. It has been a particularly strong sector of the economy and has helped provide a bulwark against a recession. This has made the Fed’s job more difficult, however, as strong employment and wage growth means it may need to remain aggressive to continue fighting inflation. This, in turn, increases the risk of slowing the economy too much and causing a recession.
The Fed will release the minutes of its latest policy meeting on Wednesday, potentially giving investors more information on its next moves.
The government will also publish its November job vacancies report on Wednesday. This will be followed by a weekly unemployment update on Thursday. The closely watched monthly jobs report is due on Friday.
Wall Street is also awaiting the latest round of corporate earnings reports, which will start arriving around mid-January. The companies have warned investors that inflation is likely to squeeze their profits and revenues in 2023. That’s after spending most of 2022 raising the prices of everything from food to clothing in a bid to offset the downturn. inflation, although many companies have gone further and actually increased their profit margins.
Companies in the S&P 500 are expected to see a 3.5% decline in earnings overall in the fourth quarter, according to FactSet. Analysts expect earnings to remain roughly flat thereafter in the first half of 2023.
US stock markets will be closed on Monday for the New Year holiday.
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