Stock markets around the world have suffered their worst performances in years, with the US enduring its worst year since the Global Financial Crisis.
Shares have been punished by traders fearing a recession, with markets weighed down by Russia’s invasion of Ukraine, high inflation and rising interest rates.
Both US and European indices closed their final sessions of the year in the red. For the year, Frankfurt was down more than 12 per cent and Paris lost 9.5 per cent for their worst performances since 2018. London, however, was up 0.9 per cent in 2022 as the energy sector was buoyed by soaring energy prices.
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It was Wall Street’s worst annual drop since 2008, with the S&P 500 index down around 20 per cent and the tech-heavy Nasdaq losing about 30 per cent for the year.
The fall ranks behind the financial crisis of 2008, stock market crash of 1974 and dotcom bubble implosion of 2002.
It has been “a terrible year,” chief investment strategist at CFRA Research Sam Stovall said.
Tech sector hit
With borrowing becoming more expensive, investments in companies, particularly in the tech world, have suffered.
The Nasdaq, where major tech stocks are concentrated, tumbled by almost 35 per cent this year.
In particular, Tesla shares lost over 65 per cent of its value, while those of Apple plunged 24 per cent and of Facebook parent Meta, 63 per cent.
The fortunes of their billionaire founders have shrunk as well, by half for Facebook’s Mark Zuckerberg and nearly half in the case of Amazon’s Jeff Bezos.
Elon Musk this year became the first person to lose $200 billion from his net worth.
Meanwhile, the Dow has fallen around nine per cent over the past year. The dollar also strengthened this year, hitting parity with the euro for the first time in 20 years.
But cryptocurrencies have been severely hit, with Bitcoin falling from around US$46,000 in March to below $20,000 three months later. It is now trading around US$16,000.
Aggressive interest rate hikes
Equities were slammed as the US Federal Reserve, European Central Bank and Bank of England aggressively lifted interest rates in a bid to tackle rampant consumer price rises. The move carries the risk of sparking recession as higher borrowing costs slow economic activity.
The MCSI World Equity Index has lost almost a fifth in its worst annual performance since 2008, when markets were ravaged by the global financial crisis.
Asia-Pacific markets finished their last sessions mostly in the green on Friday. But for the year, Hong Kong tanked 15.5 per cent and Shanghai dived 15.1 per cent in the biggest annual slumps since 2011 and 2018, respectively.
Covid spiked once more in China in December, after Beijing relaxed its strict curbs in the face of rare public outcry. The surge has also prompted worries about the impact on stretched global supply chains.
Tokyo plunged 9.4 per cent in the first annual fall since 2018 but the Bank of Japan maintained its ultra-easy monetary policy, in contrast with other central banks, to help its fragile economy.
‘Pitiful end to miserable year’
“It’s shaping up to be a pitiful end to a miserable year in stock markets,” OANDA trading platform analyst Craig Erlam told AFP.
He said 2022 had “brought an end to an era” of low interest rates that fuelled tech and crypto booms.
“That’s been replaced with soaring inflation and interest rates, immense economic uncertainty and the reshaping of energy markets in the aftermath of the Russian invasion of Ukraine,” Erlam added.
In commodities, oil prices rallied in 2022 with Brent gaining about 10 per cent and the West Texas Intermediate adding around seven per cent.
However, they remain significantly below peaks struck in March on supply woes after key producer Russia invaded its neighbour, sending natural gas prices also spiking.
Britain and other major economies now face the likely prospect of grim recessions next year, as consumers and businesses battle rampant inflation and rising rates after years of ultra-low borrowing costs.
“The most important take of the year is: the era of easy money ended, and ended for good,” noted SwissQuote analyst Ipek Ozkardeskaya.
“And given that there is still plenty of cheap central bank liquidity waiting to be pulled back, the situation may not get better before it gets worse,” she said.
“Recession, inflation, stagflation will likely dominate headlines next year.” London was down 0.8 per cent and Frankfurt shed 1.1 per cent in half-day sessions ahead of the New Year holiday. Paris closed 1.5 per cent lower.
On Wall Street, the Dow ended 0.2 per cent lower while the tech-heavy Nasdaq shed 0.1 per cent.
“It would appear that people have checked out for the year and have settled back into holiday mode for New Year celebrations,” Erlam said.
‘Bumpy ride’ ahead
“The good news is that we will soon put the year in the rearview mirror,” said Art Hogan, an analyst at B. Riley Financial.
But 2023 could prove to be a “bumpy ride” for the first few months, he said. Based on historical precedent, markets risk going even lower, Stovall warned. Investors are heading into 2023 with most of Wall Street expecting the global economy will “grow below trend, enter a mild recession and experience a bumpy reopening in China,” said Stephen Innes, managing partner at SPI Asset Management.
“These are hardly the things that stock market dreams are made of,” Innes added. However, analysts also expect the worst of Fed rate hikes, which have sent jitters across markets, to be over.
“I think the Fed will be successful and 2023 will feel like a more normal year,” said Maris Ogg of Tower Bridge Advisors.
