Wall St ends 2022 with biggest annual drop since 2008

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U.S. stocks ended the final trading session of 2022 lower on Friday, capping a year of sharp losses driven by aggressive interest rate hikes to curb inflation, recession fears, the Russia-Ukraine war and rising concerns over COVID cases in China.

Wall Street’s three main indexes booked their first yearly drop since 2018 as an era of loose monetary policy ended with the Federal Reserve’s fastest pace of rate hikes since the 1980s.

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This also marked their biggest yearly declines since the 2008 financial crisis, largely driven by growth shares as the Fed’s rate hikes boosted U.S. Treasury yields and made stocks less attractive.

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“The primary macro reasons … came from a combination of events: the ongoing supply chain disruption that started in 2020, the spike in inflation, the tardiness of the Fed beginning its rate tightening program in the attempt to corral the inflation,” said Sam Stovall, chief investment strategist at CFRA Research.

He also cited economic indicators pointing to recession, geopolitical tensions including the Ukraine war, and China’s surging COVID cases and strained relations with Taiwan.

Growth stocks have been under pressure from rising yields for much of 2022 and have underperformed their economically linked value peers, reversing a trend that had lasted for much of the past decade.

Apple Inc, Alphabet Inc, Microsoft Corp , Nvidia Corp, Amazon.com Inc, Tesla Inc are among the worst drags on the S&P 500 growth index, down between 28 per cent and 66 per cent in 2022.

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The S&P 500 growth index has fallen about 30.5 per cent this year, while the value index is down 7.7 per cent, with investors preferring high dividend-yielding sectors with steady earnings such as energy.

Energy has recorded stellar annual gains of 58 per cent due to a surge in oil prices.

Ten of the 11 S&P sector indexes dropped on Friday, led by real estate and utilities.

“The housing market has really slowed down and the values of people’s homes have declined off of the highs earlier this year,” said J. Bryant Evans, investment advisor and portfolio manager at Cozad Asset Management in Champaign, Illinois.

“That affects people’s mind frame and actually affects their spending a little bit.”

The focus has shifted to the 2023 corporate earnings outlook, with growing concerns about the likelihood of a recession.

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Still, signs of U.S. economic resilience have fueled worries that rates could remain higher, though easing inflationary pressures have raised hopes of dialed-down rate hikes.

Money market participants see 65 per cent odds of a 25-basis-point hike in the Fed’s February meeting, with rates expected to peak at 4.97 per cent by mid-2023.

According to preliminary data, the S&P 500 lost 9.43 points, or 0.24 per cent, to end at 3,839.85 points, while the Nasdaq Composite lost 11.05 points, or 0.11 per cent, to 10,467.74. The Dow Jones Industrial Average fell 70.47 points, or 0.21 per cent, to 33,152.55.

© Thomson Reuters 2022