Investors

Stock Market Falls 20% As Inflation, War, Leave Investors Nowhere To Hide

Stock trader Peter Tuchman reacts on the floor of the New York Stock Exchange at the closing bell on … [+] Dec. 30, 2022. Wall Street marked a gloomy end to 2022, as stocks, bonds, and cryptocurrencies sank to their worst annual showing in years. (Photo by TIMOTHY A. CLARY / AFP) (Photo by TIMOTHY A. CLARY/AFP via Getty Images)

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The stock market set a record high on the first trading day of 2022 then spent the next 12 months tumbling in the worst decline since 2008, the height of the Great Fiscal Crisis.

This was also a year in which there were few places to hide. Stocks fell, bonds fell, and cryptocurrencies crashed.

On Friday, S&P 500 Index gave back a quarter point, 0.25%, to close the year down 19.4% at 3839.50. But measured from its all-time high of 4796.56 on Jan. 3, the first-trading day of the year, the index plunged 20%.

The Dow Jones Industrial Average shed 0.22% to close the year down half as much as the S&P, 9.6% to 33147.25. The Dow also hit an all-time high the first week of the year, to 36799.65 on Jan. 4, the second trading day of the year. Off the high it sank 10%.

A mix of factors caused the plunge. Russia invaded Ukraine just a month into the new year, creating shortages of wheat and fertilizer worldwide, and energy for Europe. This led energy to be the best performing sector of the year. The Energy Select Sector SPDR ETF (XLE XLE ), which holds all the energy stocks in the S&P 500, rocketed 66.2% in 2022.

Then as people came out of the Covid-19 lockdown they began to buy things, a lots of things. This caused inflation to raise its ugly head as the level of demand for goods and services surged.

Together with the supply chain problems caused by the pandemic and the Russian/Ukraine War, prices soared to levels not seen in 41 years. The Consumer Price Index (CPI) rocketed to 9.1% in June. It was the largest increase since November 1981. By last month, it had declined to 7.1%.

Inflation is notoriously bad for high growth companies, many of which are in the technology sector. Technology was one of the worst sectors of the year. The Technology Select Sector SPDR ETF (XLK XLK ), which holds all the tech stocks in the S&P 500, skidded 27.7% over the year.

This caused the tech heavy Nasdaq Composite Index, to plummet 33.1% to close the year at 10466.48. The Nasdaq also hit a record high on the first trading day of 2022, to 15832.80. Off the high, it ended the year down 33.9%.

Another reason the market fell was the Federal Reserve’s effort to fight the surging inflation. It raised interest rates from 0% to the range of 4.25% to 4.5%, the highest rate in 15 years, and the fastest increase since the 1980s. The Fed expects to keep raising rates in 2023.

This caused the U.S. Treasury market to record an annual loss in 2022. The 10-year US Treasury bond opened the year with a yield of 1.51%. After hitting a year high of 4.33% in October, the 10-year closed the year with a yield of 3.88%.

“The Bloomberg US Treasury Index returned -12.5%, its second straight full-year loss and the biggest in its four-decade history; the worst months for the index were in September, March and April; the 1Q loss of 5.58% was the biggest on record for a single quarter” according to Bloomberg.

Finally, cryptocurrencies, which had been advertised as a store of value for inflationary times, like gold, failed to live up to all it’s expectations, other than being extremely volatile. Bitcoin BTC , the flagship of the crypto market, ended the year at $16,602.59. This a 64.1% dive for 2022. Since Nov. 8, 2021, when Bitcoin hit a record high of $67,566.83, it has plunged 74.4%.

The Dow Jones Industrial Average shed 0.22% to close the year down half as much as the S&P, 9.6% to 33147.25. The Dow also hit an all-time high the first week of the year, to 36799.65 on Jan. 4, the second trading day of the year. Off the high it sank 10%.

Source: https://www.forbes.com/sites/lcarrel/2022/12/31/stock-market-falls-20-as-inflation-war-leave-investors-nowhere-to-hide/

Donovan Larsen

Donovan is a columnist and associate editor at the Dark News. He has written on everything from the politics to diversity issues in the workplace.

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