A man rides a bicycle past monitors showing Japan’s Nikkei 225 index at a securities firm in Tokyo on Friday. Asian stocks followed Wall Street higher on Friday after encouraging US employment data, but slipped to double-digit losses for the year. (Hiro Kome, Associated Press)
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NEW YORK — Wall Street capped a quiet day of trading with heavy losses on Friday as the S&P 500 closed the book on the worst year since 2008.
The benchmark index ended 2022 with a loss of 19.4%, or 18.1% including dividends. It was the third annual decline since the financial crisis 14 years ago and a painful reversal for investors after the S&P 500 posted a nearly 27% gain in 2021. All told, the index lost $8.2 trillion in value, according to S&P Dow Jones Indices. .
The Nasdaq composite, with a large portion of technology stocks, posted an even bigger loss of 33.1%.
The Dow Jones Industrial Average, meanwhile, posted an 8.8% loss in 2022.
The stock struggled throughout the year inflammation That increased pressure on consumers and raised concerns about economies slipping into recession. Central banks raised interest rates to counter higher prices. Aggressive rate hikes by the Federal Reserve are a key focus for investors as the central bank walks a fine line between raising rates enough to reduce inflation.
The central bank’s key lending rate was 0% to 0.25% at the start of 2022 and will close the year at 4.25% to 4.5% after seven hikes. The U.S. Federal Reserve predicts rates will range from 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 overpriced shares of tech giants such as Apple and Microsoft, as well as other companies that have grown as the economy recovers from the pandemic. Amazon and Netflix lost about 50% of their market value. Facebook’s parent company Tesla and Meta Platforms each fell more than 60%.
Russia’s invasion of Ukraine Inflationary pressures worsened earlier in the year by making oil, gas and food prices even more volatile amid ongoing supply chain issues. Oil closed Friday at $80, $5 more than it started the year. But in between oil rose above $120, a 59% gain among 11 sectors in the S&P 500, helping energy stocks post the only gain.
China spent most of the year imposing strict COVID-19 policies that crippled production for raw materials and goods, but is now in the process of lifting travel and other restrictions. What impact China’s reopening will have on the global economy is uncertain at this point.
Still, the Fed’s battle against inflation will be a major concern on Wall Street in 2023, analysts say. Investors will continue to look for a better sense of whether inflation is easing fast enough to ease pressure on consumers and the central bank.
If inflation continues to show signs of easing, and the Fed moderates its rate hike campaign, that could pave the way for a rebound in stocks in 2023, said Jay Hatfield, CEO of Infrastructure Capital Advisors.
“The Fed has been higher in this market since November of last year, so if the Fed pauses and we don’t have a major recession, we think that sets us up for a rally,” he said.
The Fed has actually been bullish on this market since November of last year, so if the Fed pauses and we don’t have a major recession, we think that sets us up for a rally.
– J Hadfield
There was very little corporate or economic news for Wall Street to review on Friday. That, plus a holiday-shortened week, set the stage for mostly light trading.
The S&P 500 closed down 9.78 points, or 0.3%, at 3,839.50. The index posted a loss of 5.9% in December.
The Dow closed down 73.55 points, or 0.2%, at 33,147.25. The Nasdaq fell 11.61 points, or 0.1%, to 10,466.48.
Tesla rose 1.1% as it steadied after steep losses earlier in the week. The electric vehicle maker’s stock could plunge 65% in 2022, wiping out about $700 billion in market value.
Southwest Airlines rose 0.9%, returning to normalcy following a major cancellation of its operations during the holiday season. The stock ended the week down another 6.7%.
Small company stocks also fell on Friday. The Russell 2000 ended down 5 points, or 0.3%, at 1,761.25.
Bond yields are mostly higher. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.88% from 3.82% late Thursday. While bonds generally fare better when stocks fall, 2022 turned out to be one of the worst years for the bond market in history, thanks to the Fed’s rapid rate hikes and inflation.
The first week of 2023 sees several major updates to the job market. It has been a particularly strong part of the economy and helped create a buffer against recession. This has made the central bank’s job more difficult, as strong employment and wages must be aggressive to combat inflation. That raises the risk of slowing the economy significantly and bringing about a recession.
The central bank will release minutes of its latest policy meeting on Wednesday, giving investors more insight into its next moves.
The government will also release its November jobs report on Wednesday. It will be followed by a weekly update on unemployment on Thursday. The closely watched monthly employment report is due on Friday.
Wall Street is awaiting the latest round of corporate earnings reports, which will begin arriving in mid-January. Companies are warning investors that inflation will erode their profits and earnings in 2023. Only after spending much of 2022 raising prices on everything from food to clothing in an attempt to offset inflation did many companies go further and actually tighten their profit margins.
According to FactSet, companies in the S&P 500 are expected to report a 3.5% drop in earnings in the fourth quarter. Analysts expect earnings to be roughly flat in the first half of 2023.
US stock markets will be closed on Monday for the New Year holiday.