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With just a couple of trading days left, 2022 is turning out to be the worst year for the U.S. stock market in over a decade. The S&P 500 Index is down 20.6% this year — the benchmark’s first double-digit percentage loss since 2008, when it slid 36.6% during the global financial crisis, according to Dow Jones Market Data. The Dow Jones Industrial Average has declined 9.5% while the tech-heavy Nasdaq Composite Index plunged the most by 34.7%.

Persistently high inflation, a hawkish Fed, Russia's invasion of Ukraine, and a resurgence of COVID-19 cases in China are weighing heavily on investor sentiment. The combination has sparked fears of a recession anytime soon and is expected to influence the stock market in a big way in the New Year as well.

Below, we discuss some of the hot events of 2022 that influenced the market in a big way:

Skyrocketing Inflation

Inflation in the United States is cooling down gradually, underscoring that the worst of inflation has likely passed and the economy will be back on track sooner than expected. This is especially true as the consumer price index jumped 7.1% year over year in November, down from a 7.7% year-over-year increase in October and a recent peak of 9.1% in June. This represents the lowest annual increase since late 2021 but was still more than three times the Fed's historic 2% inflation target.

Investors could make some profits by investing in ETFs like Invesco DB Commodity Index Tracking Fund (DBC - Free Report), benefiting from rising inflation. Invesco DB Commodity Index Tracking Fund is used to satisfy the demand for inflation-hedging instruments. It follows the DBIQ Optimum Yield Diversified Commodity Index Excess Return, composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world.

Invesco DB Commodity Index Tracking Fund has AUM of $2.7 billion and charges 87 bps in annual fees. The fund trades in an average daily volume of 2.9 million shares and has gained 19.8% this year.

Hawkish Fed

The Fed has been on an aggressive tightening spree for more than decades. Fed Chair Jerome Powell raised interest rates for the seventh time this year, taking the benchmark rate to the range of 3.75% and 4.00% — the highest level since 2008. The hike in interest rates has made borrowing expensive, pushed up the cost of buying a new car or house and increased the cost of carrying credit card debt.

Simplify Interest Rate Hedge ETF (PFIX - Free Report) seeks to provide a hedge against a sharp increase in long-term interest rates and benefit from market stress when fixed-income volatility increases, while providing the potential for income. It buys put options on longer-term Treasury bonds to offer “the most liquid and the most cost-efficient way of getting interest rate protection.” Simplify Interest Rate Hedge ETF is the first ETF providing a simple, direct and transparent interest rate hedge.

PFIX has accumulated $375.9 million in its asset base and trades in an average daily volume of 339,000 shares. It charges 50 bps in annual fees and has skyrocketed nearly 93% this year.

Recession Fears

The increase in interest rates has made borrowing expensive, driving up the cost of buying a new car or house, or the cost of carrying credit card debt, and is thus slowing down economic growth. The consumer staples sector is viewed as defensive as it includes a variety of items like food & beverages, non-durable household goods, hypermarkets and consumer supercenters that are essential for daily needs. These products see steady demand even during an economic downturn due to their low levels of correlation with economic cycles.

Invesco Dynamic Food & Beverage ETF (PBJ - Free Report) offers exposure to 31 stocks engaged in manufacturing, selling or distributing food and beverage products, agricultural products and products related to the development of new food technologies by tracking the Dynamic Food & Beverage Intellidex Index.

With an AUM of $368.2 million, Invesco Dynamic Food & Beverage ETF charges 63 bps worth of annual fees from investors and sees a moderate average daily volume of 63,000 shares. PBJ is up 5.6% and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Energy Sector: A Winner

The energy sector has been the outperformer this year on surging oil prices. Tightening supply and improving demand fundamentals have been driving prices higher. Overall demand for fuel has rebounded to the pre-pandemic levels. As such, VanEck Vectors Oil Services ETF (OIH - Free Report) is the winner gaining nearly 66%. VanEck Vectors Oil Services ETF tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. It holds 25 stocks in its basket.

With AUM of $2.5 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees. It trades in an average daily volume of 803,000 shares and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Actively Managed ETFs Grow

Given high inflation and market volatility, actively managed ETFs grew at a rapid pace this year, accumulating $121 billion to reach $341 billion. Though active ETFs make up for only 4% of total assets in the space, it has captured 14% of total net flows this year — the highest ever. The rapid growth came as major active mutual fund providers entered the ETF fray by converting or cloning existing mutual fund strategies or adding new strategies.

JPMorgan Ultra-Short Income ETF (JPST - Free Report) is the most growing actively managed ETF of this year. It invests primarily in a diversified portfolio of short-term, investment grade fixed-and floating-rate corporate and structured debt while actively managing credit and duration exposure. JPMorgan Ultra-Short Income ETF holds 616 bonds in its basket with an average duration of 0.27 years.

JPMorgan Ultra-Short Income ETF has accumulated $23.6 billion in its asset base while trading in a good volume of around 4.9 million shares a day. It charges 18 bps in annual fees.

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