Goodbye & Good Riddance 2022 – Worst Year Since 2008

Stocks and bonds turned in their worst year since 2008 in 2022, leaving most investors licking their wounds. 2022 was a year most investors would rather just forget and hope that 2023 brings better results.

All of the major stock market averages were down significantly last year. The bell-weather S&P 500 Index fell 18.39%. The Dow Jones Industrial Average fared best, losing only 7.26%. The Nasdaq Composite Index fared worst, losing a whopping 32.68%. The Russell 2000 Index lost 20.71%.

European stocks also closed out the year on a sour note, down 11.8%, securing their worst annual run since 2018. Most other major developed nations saw their stock markets decline as well, leaving investors with few safe places to hide.

The US and global bond markets, often a good place to be when equity markets are falling, were no exception to the carnage either. The 30-year US Treasury bond was down 35% at its low last year, its worst return in a century.

Corporate bonds had a miserable 2022, too: The return on bonds issued by S&P 500 companies was -14.2% last year. The Bloomberg Aggregate US Bond Index had its worst year since the index’s inception in 1977.

Russia’s invasion of Ukraine, snarled supply chains and another year of Covid turned markets on their head last year. Inflation surged around the globe and central banks hiked interest rates at a historic pace to keep price hikes from spiraling out of control.

China, the world’s second-largest economy, periodically shut down entire cities to contain the pandemic. Energy supplies were cut off, but recession fears sent demand falling in the second half of the year anyway. Intense storms and climate change upended markets, too.

All this left few safe places for investors to park their money.

Inflation, which briefly rose above 9% in the United States — a 40-year high — hurt economic growth, even as consumers continued to spend. But it severely damaged corporate profits.

While all the numbers aren’t in yet, S&P 500 companies’ earnings are expected to have grown just 5% last year, well below the average annual increase of 8.5% that Wall Street posted over the past 10 years.

Not all the news was bad last year, though. Energy, which boomed as oil and gas prices surged in the first half of last year, made up the entirety of Wall Street’s profit gains. The energy sector returned more than 60% last year, significantly outperforming every other S&P 500 sector.

But even in the strong energy sector, not all the news was good. Generac Holdings (GNRC), an energy technology solution company, was the worst performing stock in the S&P 500 in 2022, down about 74%. Coming in second was dating app company Match Group (MTCH), down 70%.

Growth stocks, or shares of companies that are expanding their business quickly, got hammered particularly hard last year as well. Investors value these firms based on expectations for future profits. However, those look less enticing in a world in which interest rates are going up.

Elon Musk’s Tesla was down about 70%, making the auto tech company the third-worst performer in the S&P 500 last year. Meta, Facebook’s parent company, also made an appearance in the bottom 10 stocks — down 64% in 2022.

That’s a huge shake-up: At the start of last year, Tesla was the fifth-most valuable company in the S&P 500 and Meta was sixth. Tesla is now the 11th most-valuable firm in the index and Meta is in 19th place.

Even Amazon, Apple and Microsoft — tech names that have become staples for investors — took major hits as investors adjusted to an environment in which rates were rising.

As the sheen came off the stock and bond markets last year, one of the biggest stories was the disastrous meltdown in cryptocurrencies. After a dramatic run-up in 2021 to record highs, investors were confronted with an epic collapse.

The implosion of parts of the industry once viewed as relatively stable, such as Sam Bankman-Fried’s FTX exchange, sent traders running for cover. Bankman-Fried’s FTX exchange filed for bankruptcy in November.

Crypto insiders acknowledge it will probably take years to rebuild confidence. As regulators circle, the heady days of minting profits off memes feel like a distant memory.

Let’s face it: 2022 was just a bad year all the way around for most investors. It remains to be seen if the current bear market will cause investors to seek more defensive investments which can go to cash in part or in full. We’ll see.

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