Shares were teetering on Tuesday, the first day of trading in 2023, after a tumultuous year of high inflation and rising interest rates rocked financial markets.
The S&P 500 fell 0.8 percent in midday trade, reversing initial gains. On this day last year, the S&P 500 hit its all-time high. Since that peak, the benchmark index has fallen nearly 20 percent, its worst year since the 2008 financial crisis.
The Federal Reserve’s commitment to fighting high inflation has moved the market over the past year. On Wednesday, the release of minutes from the Fed’s December meeting, when the central bank moved to a half-point rate hike after four consecutive three-quarter-point hikes, could offer more insight into the path Fed officials are taking in the fight against inflation . This Friday, the latest monthly jobs data will be examined for signs of a slowdown in the labor market, which would ease pressure on prices.
Ben Laidler, an analyst at eToro, a trading firm, called inflation the “fundamental key” to market movements this year. “A sharp decline offers relief from the Fed rate shock and the slowly building economic recession and supports our positive view,” he wrote in a note.
The S&P 500 has had annual declines of 10 percent or more nine times in the past 75 years, and the market has risen sharply in seven of the subsequent years, averaging 18 percent, according to Mr. Laidler. Most strategists anticipate that the market will end 2023 roughly where it started after predictions for 2022 proved far too optimistic.
“Anything that limits the aggressiveness of global central banks from here” would be positive for markets, said BMO Capital Markets’ Ian Lyngen, such as softening energy prices and lower-than-expected German inflation numbers released on Tuesday.
Among individual stocks, Tesla stood out as it posted another big drop, down more than 10 percent on Tuesday, on top of its 65 percent drop over the past year. On Monday, when markets were closed, the electric-car maker reported weaker-than-expected quarterly sales, disappointing Wall Street analysts and putting pressure on Elon Musk, the company’s chief executive, to focus more on strengthening Tesla than the company Focus overhaul of Twitter.
The dollar rose and US Treasury yields fell on Tuesday, but the 2-year yield remains well above the 10-year, a rare but reliable sign of a recession. West Texas Intermediate crude, the US benchmark, fell 2 percent to less than $79 a barrel.
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