US Stocks Suffer Worst Year Since Financial Crisis: Markets Wrap

(Bloomberg) – U.S. stocks fell on the last trading day of 2022, ending the worst year in more than a decade for global stocks and bonds.

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Even after a surge in dip buying in the final hour of trading, the S&P 500 ended lower for a third day of the shortened holiday week, trailing the benchmark by almost 20% in 2022. The Nasdaq 100 closed, down a third this year, as technology stocks proved some of the most vulnerable to rising interest rates.

In a well-known playbook for 2022, government bond yields rose on the last day of trading, with the 10-year rate hitting a seven-week high. The dollar continued its slide, with the Bloomberg Dollar Spot Index falling to a six-month low.

This week’s losses have dashed hopes of a rally to close out 2022 – a year in which inflation reasserted itself and wiped out a fifth of the value of global equities, the worst since the financial crisis. Bonds lost 16% of their value, the biggest drop for a leading metric since at least 1990, as central banks rushed to stem rising consumer prices by raising interest rates around the world.

“We’ve never seen a market environment like this, where both stocks and bonds have fallen at the same time,” said Art Hogan, chief market strategist at B. Riley Wealth. “The good news is that we will soon be looking at the year in the rear-view mirror. The bad news is that 2023 could be a bumpy ride, at least for the first few months. Weaker economic trends are likely to emerge into 2023 as the Fed fights inflation, but a mild recession could help set stocks up for a better second half.”

Read more: When the roads parted in 2022, one trade made the difference

The story goes on

Concerns about the spread of Covid-19, which surfaced this week, also weighed on markets, with The Times reporting that the UK will require all travelers arriving from China to have a negative Covid test. The European Commission has urged EU member states to review Covid testing and sequencing procedures and to consider reopening amid growing concerns about the spread of the virus from China.

Read more: Covid mutation risk is the main reason for restrictions on travel to China

After a peak year for stocks in 2021, which saw the S&P 500 climb to consecutive record highs, few foresaw the sell-off that would follow. But after rallying to another all-time high on Jan. 3, tide quickly turned as the Federal Reserve signaled its determination to curb inflation. This signaled the start of the most aggressive rate hike path in decades, rattling stocks and bonds.

As US stocks were sucked into a bear market, the decline in Treasuries pushed benchmark 10-year yields up to 3.8% from 1.5% at the start of the year. That could mean a different outlook for fixed income in 2023 and a revival of the widespread 60/40 portfolio that has come under pressure in 2022.

“While stocks struggle with slowing economic activity and losing inflated profits to inflation, bonds provide decent income with the potential to rise when yields peak,” said Bryce Doty, senior portfolio manager at Sit Investment Associates. “The Fed is almost done raising rates – we don’t expect a hike at the May Fed meeting – and inflation is slowing.”

Read more: Treasury strategists expect lower yields and a steeper curve in 2023

Some of the key movements in the markets:

stocks

• The S&P 500 was down 0.3% as of 4 p.m. New York time

• The Nasdaq 100 fell 0.1%

• The Dow Jones Industrial Average fell 0.2%

• The MSCI World Index fell 0.2%

currencies

• The Bloomberg Dollar Spot Index fell 0.4%

• The euro rose 0.4% to $1.0705

• The British pound rose 0.3% to $1.2088

• The Japanese yen rose 1.3% to 131.25 per dollar

cryptocurrencies

• Bitcoin was little changed at $16,598.9

• Ether was up 0.4% to $1,199.1

Bind

• The 10-year government bond yield rose six basis points to 3.87%

• The 10-year German government bond yield rose 13 basis points to 2.57%

• The 10-year UK government bond yield rose one basis point to 3.67%

raw materials

• West Texas Intermediate crude rose 2.6% to $80.41 a barrel

• Gold futures rose 0.2% to $1,829.90 an ounce

This story was created with the support of Bloomberg Automation.

–Assisted by Jan-Patrick Barnert, Richard Henderson, Vildana Hajric, Robert Brand and Peyton Forte.

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