Stock stretch declines in a very familiar 2022 move: wrapping markets

(Bloomberg) — Big tech led stocks lower again on the last trading day of 2022, closing out the worst year in more than a decade for global stocks and bonds.

Most Read from Bloomberg

The S&P 500 briefly fell to session lows in thin trading, sparking Thursday’s rally at its best in December and leaving it down nearly 20% for 2022. The high-tech Nasdaq 100 fell the most among benchmarks on Friday , on the verge of losing a third of its value this year, as technology stocks emerged as one of the most vulnerable groups to price increases.

Treasuries fell, sending yields higher across the board. The dollar extended its decline against major currencies, with the Bloomberg Spot Dollar Index dropping to a six-month low. The yen rose even after the Bank of Japan unveiled an unprecedented third day of unscheduled bond buying.

Losses this week dashed hopes of a rally towards the end of 2022 – the year in which inflation reasserted itself wiping out a fifth of its value from global stocks, the worst wave since the financial crisis. Bonds lost 16% of their value, the biggest drop since 1990 for at least one major measure, as central banks scrambled to slow rising consumer prices by raising interest rates around the world.

“We’ve never seen a market environment like this where stocks and bonds are down simultaneously,” said Art Hogan, chief market strategist at B. Riley Wealth. “The good news is that we will soon be putting the year in the rearview mirror. The bad news is that 2023 may have a bumpy ride, at least in the first few months. Weaker economic trends are likely to form heading into 2023 as the Fed battles inflation, but A moderate recession could help lift inventories for a better second half of the year.”

Story continues

After a banner year for stocks in 2021 that saw the S&P 500 climb to consecutive record highs, expect a bit of the ensuing sell-off. But after surging to another all-time high on Jan. 3, fortunes quickly turned around as the Federal Reserve signaled its intent to rein in inflation. That heralded the start of the most aggressive course of rate hikes in decades, leaving stocks and bonds plummeting in its wake.

With US stocks dragged into a bear market, the decline in Treasury bonds sent record 10-year yields to 3.9% from 1.5% at the start of the year. That could offer a different outlook for fixed income in 2023 and a revival of the widely followed 60/40 portfolio reached in 2022.

“While stocks will struggle with slowing economic activity and missing out on profits swelled by inflation, bonds are making a decent income with the potential for higher prices as yields fall below their peak,” said Brice Doty, portfolio manager at Sit Investment Associates. “The Fed is almost done raising interest rates – we don’t expect a hike at the May meeting – and inflation is slowing.”

Concern about the spread of Covid-19 that emerged this week continues to weigh on the markets. The European Commission has asked EU member states to review Covid testing and sequencing procedures and consider expanding them amid growing concerns about the spread of the virus from China.

Elsewhere, emerging market stocks are set for their first weekly advance in three, though the benchmark is still on track to drop more than 20% in 2022.

Oil fell, adding to a three-day series of declines on worries about rising crude inventories and fears that a surge in Covid-19 infections in China could slow demand in one of the world’s largest oil importers. Bitcoin ends the year weakly, dropping around 0.8% to reach more than 64% in 2022.

Some of the major movements in the markets:

Stores

• The S&P 500 is down 1% as of 1:32 p.m. New York time

• The Nasdaq 100 fell 1.1%.

• The Dow Jones Industrial Average fell 0.9%.

• MSCI World Index fell 0.7%

currencies

• The Bloomberg Spot Dollar Index fell 0.4%.

• The euro rose 0.4 percent to $1.0706

• The British pound rose 0.2% to $1.2078

• The Japanese yen rose 1.7% to 130.83 per dollar

Digital currencies

• Bitcoin fell 0.4% to $16,522.2

• Ether hasn’t changed much at $1,195.16

bonds

• The yield on the 10-year Treasury note advanced five basis points to 3.87%.

• Germany’s 10-year yield advanced 13 basis points to 2.57%.

• The yield on the 10-year UK Bund advanced 1 basis point to 3.67%.

goods

This story was produced with help from Bloomberg Automation.

— With assistance from Jean-Patrick Barnert, Richard Henderson, Vildana Hajrick, Robert Brand, and Peyton Forte.

Most Read from Bloomberg Businessweek

© Bloomberg LP 2022