U.S. stocks fell on the last trading day of 2022, posting monthly losses and the worst year since 2008.

US stocks closed lower on Friday, posting their biggest annual loss since 2008 as tax losses, as well as concerns about the outlook for US corporate profits and consumers, took their toll.

How stock indices are traded
  • Dow Jones industrial index DJIA,
    fell 73.55 points, or 0.2%, to 33,147.25.

  • S&P 500 SPX,
    lost 9.78 points, or 0.3%, to 3839.50.

  • The Nasdaq Composite fell 11.61 points, or 0.1%, to 10,466.48.

Over the week, the Dow fell 0.2%, the S&P 500 fell 0.1%, and the Nasdaq fell 0.3%. The S&P 500 has fallen for the fourth week in a row, the longest losing streak since May, according to Dow Jones Market Data.

All three major benchmarks experienced their worst year since 2008, based on percentage declines. The Dow is down 8.8% in 2022, while the S&P 500 is down 19.4% and the tech-saturated Nasdaq is down 33.1%.

What drives the markets

US stocks fell on Friday, ending the last trading session of 2022 with weekly and monthly losses.

Stocks and bonds have fallen this year as the Federal Reserve raised its benchmark interest rate more aggressively than many expected in a bid to tamp down the worst inflation in four decades. The S&P 500 ended 2022 with a 19.4% loss, its worst annual performance since 2008, according to Dow Jones Market Data, as the index snapped a three-year winning streak.

“Investors were on edge,” Mark Heppenstall, chief investment officer at Penn Mutual Asset Management, said in a phone interview Friday. “It seems like the ability to cut prices is probably a bit easier given how lousy the year has been.”

Stocks have tumbled in recent weeks as hopes for a change in Fed policy faded after the central bank signaled in December that it would likely wait until 2024 to cut interest rates.

On the last day of the trading year, markets were also hit by selling to lock in losses that could be written off tax accounts, a practice known as tax loss collection, according to Kim Forrest, chief investment officer at Bokeh Capital Partners. .

The uncertain outlook for 2023 also took its toll as investors worried about the strength of U.S. corporate profits, the economy and consumers as fourth-quarter reporting season looms early next year, Forrest said.

“I think the Fed and then the earnings in mid-January – they will set the tone for the next six months. In the meantime, one can only guess about it, ”she added.

The US central bank has raised its benchmark rate by more than four percentage points since the start of the year, pushing borrowing costs to their highest level since 2007.

The timing of the first Fed rate cut is likely to have a major impact on markets, Forrest said, but the outlook remains uncertain even as the Fed has tried to signal it plans to keep rates higher for a longer time.

In terms of economic data, the Chicago PMI for December, the latest major data release for the year, was stronger than expected, climbing to 44.9 from 37.2 a month earlier. Readings below 50 indicate contraction territory.

Next year, “we are likely to shift to concerns about economic growth, not inflation,” Heppenstall said. “I think that slower growth will eventually lead to a more meaningful reduction in inflation.”

To read: Stock market investors face three recession scenarios in 2023

Eric Sterner, CIO of Apollon Wealth Management, said in a phone interview Friday that he expects the US could fall into a recession next year and that the stock market could see a new bottom as companies could potentially revise their earnings downward. “I think revenue expectations for 2023 are still too high,” he said.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite recorded slight weekly declines, adding to December’s losses. The Dow is down 4.2% in the month, the S&P 500 is down 5.9% and the Nasdaq is down 8.7%, according to FactSet.

To read: Value stocks outperform growth stocks in 2022 by historically large margins

In terms of bonds, the US Treasury market should have been a record year since at least the 1970s.

Yield on 10-year treasury bonds TMUBMUSD10Y,
jumped 2,330 percentage points this year to 3.826%, the largest annual gain on record based on data going back to 1977, according to Dow Jones Market Data.

Yield on two-year treasury bonds TMUBMUSD02Y,
rose by 3.669 percentage points in 2022 to 4.399%, and the 30-year yield of TMUBMUSD30Y,
jumped by 2.046 percentage points and at the end of the year amounted to 3.934%. According to Dow Jones Market Data, this marked the biggest calendar year gain for either of them, based on data since 1973.

Outside the US, European stocks suffered their biggest percentage drop in a calendar year since 2018 thanks to the Stoxx Europe 600 SXXP.
The euro-denominated stock index fell 12.9%, according to Dow Jones Market Data.

To read: US stock market plunge lags these international ETFs as 2022 draws to a close

Companies in the spotlight
  • Tesla Inc.
    shares rose 1.1% after the worst streak of losses in more than four years.

  • southwestern airlines
    shares rose 0.9% as the company said it expects its holiday travel fiasco to weigh on fourth-quarter earnings.

  • Las Vegas Sands Corp.
    was one of the top performers in the S&P 500 index on Friday, its shares up 2.1% as it confirmed the resumption of gaming concessions in Macau.

— Steve Goldstein contributed to this article.

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