(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 equities and bonds.
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The S&P 500 dropped, taking the shine off Thursday’s best-of-December rally and leaving it down almost 20% in 2022. The tech-heavy Nasdaq 100 fell the most among benchmarks on Friday, poised to lose a third of its value this year as tech stocks emerged as some of the most vulnerable to rising rates.
Treasuries fell, sending yields higher across the board. The dollar extended declines against major peers, with the Bloomberg Dollar Spot Index falling to a six-month low. The yen rallied even after the Bank of Japan unveiled an unprecedented third day of unscheduled bond purchases.
Losses this week scuppered hopes for a rally to close out 2022 — a year when inflation reasserted itself to wipe a fifth in value from global stocks, the worst run since the financial crisis. Bonds lost 16% of value, the biggest decline since at least 1990 for one leading measure, as central banks raced to slow rising consumer prices by hiking interest rates around the world.
“We’ve never seen a market environment like this where both stocks and bonds were down simultaneously,” said Art Hogan, chief market strategist at B. Riley Wealth. “The good news is that we will soon put the year in the rearview mirror. The bad news is that 2023 could be a bumpy ride, at least for the first few months. Weaker economic trends will likely form heading into 2023 as the Fed battles inflation, but a mild recession may help set stocks up for a better second half of the year.”
After a banner year for stocks in 2021 that saw the S&P 500 climb to consecutive record highs, few foresaw the selloff that ensued. But after rising to yet another all-time high on Jan. 3, fortunes quickly turned as the Federal Reserve signaled determination to rein in inflation. That foreshadowed the onset of the most aggressive rate-hike path in decades, leaving stocks and bonds tumbling in its wake.
With US stocks dragged into a bear-market, the drop in Treasuries sent benchmark 10-year yields to 3.9% from 1.5% at the start of the year. That could present a different outlook for fixed income in 2023 and a revival of the widely followed 60/40 portfolio that got hammered in 2022.
“While stocks will struggle with slowing economic activity and the loss of inflated earnings from inflation, bonds are earning a decent income with the potential for price appreciation as yields come off their peak,” said Bryce Doty, senior portfolio manager for Sit Investment Associates. “The Fed is nearly done raising rates – we expect no raise at the Fed’s May meeting – and inflation is slowing.”
Concern about the spread of Covid-19 that surfaced this week still weighs on markets. The European Commission has asked EU member states to review Covid testing and sequencing procedures and to consider scaling them back up amid increased concern about the virus spreading from China.
Elsewhere, emerging-market stocks were set for the first weekly advance in three, though the benchmark index remains on track for a decline of more than 20% in 2022.
Oil dipped, adding to a three-day run of declines on worries about a rise in crude stockpiles and concerns that rising Covid-19 infections in China would slow demand in one of the world’s top oil importers. Bitcoin is ending the year limply, slipping about 0.8% to bring its decline in 2022 to more than 64%.
Some of the main moves in markets:
Stocks
The S&P 500 fell 0.7% as of 1:03 p.m. New York time
The Nasdaq 100 fell 0.8%
The Dow Jones Industrial Average fell 0.6%
The MSCI World index fell 0.5%
Currencies
The Bloomberg Dollar Spot Index fell 0.5%
The euro rose 0.4% to $1.0708
The British pound rose 0.3% to $1.2096
The Japanese yen rose 1.6% to 130.93 per dollar
Cryptocurrencies
Bitcoin fell 0.4% to $16,521.5
Ether was little changed at $1,194.85
Bonds
The yield on 10-year Treasuries advanced two basis points to 3.84%
Germany’s 10-year yield advanced 13 basis points to 2.57%
Britain’s 10-year yield advanced one basis point to 3.67%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jan-Patrick Barnert, Richard Henderson, Vildana Hajric, Robert Brand and Peyton Forte.
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