Pain, few gains for investors as markets slumped in 2022

Friday, December 30, 2022, Vol. 46, No. 52
The Associated Press

Investors found few, if any, places to safely put their money in 2022, as central banks in the U.S. and around the globe raised interest rates for the first time in years to fight surging inflation, stoking fear of a global recession.

Uncertainty about how far the Federal Reserve and other central banks would go in the fight against inflation sparked a return of volatility. Large swings in stocks were common on Wall Street as the Fed raised its key interest rate seven times and signaled more hikes to come in 2023.

Russia's invasion of Ukraine and China's strict COVID-19 policies also contributed to inflation and roiled the global economy as well as markets in Asia, Europe and the U.S.

On Wall Street, the benchmark S&P 500 index had its worst start to a year since 1970. By June, t he index fell into a bear market, a drop of more than 20% from the record high set in early January. The energy sector was the lone winner, benefitting from a spike in oil and gas prices. Technology stocks tumbled after leading the market during the pandemic.

Borrowing money got more expensive. The 10-year Treasury yield, which influences rates on mortgages and other loans, soared, reaching 4.22% in October after starting the year at 1.51%.

Still, climbing yields in the U.S. and abroad sent prices for older bonds already in investors' portfolios sharply lower. The rout in bonds was particularly painful for fixed-income investors.

Cryptocurrency investors weren't spared either. Bitcoin shed more than half its value and a number of high-flying companies wound up in bankruptcy court.

— Alex Veiga

Here's a look back on the key events in markets for 2022:

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INFLATION AND THE FED

Inflation was the dominant global economic theme this year. Gasoline prices in the U.S. reached $5 a gallon. Companies either raised prices, or kept prices steady but put less in each package. Europe feared running short of natural gas and prices there rose more than in the U.S.

Central banks' response to inflation overshadowed financial markets in 2022 and could very well do so again next year. As the year began, officials at the Federal Reserve had accepted that inflation was not a temporary phenomenon. Russia's invasion of Ukraine only made things worse by sending energy and food prices soaring.

Still, it wasn't until March, when the U.S. government said inflation had approached 8%, that the Fed acted — too little, too late for some pundits and economists. As the year went on the Fed got more aggressive, eventually raising rates seven times by a total of 4.25 percentage points.

Inflation in the U.S. appears to have peaked at 9.1% in June. By year-end, there were hopeful signs as prices for goods fell and rents started declining. But tough inflation talk from the Fed at its last meeting of the year took the steam out of what had been a fourth-quarter rally for stocks.

— Chris Rugaber

For full coverage of the global economy, go to https://apnews.com/hub/economy

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THE BEAR ROARS

Wall Street's brutal year left few stocks unscathed, and the vast majority fell into a bear market under the weight of fast-rising interest rates.

After peaking on the very first trading day of 2022, it took about six months for the S&P 500 to drop more than 20%. The biggest losers were the stocks that had performed the best in the rally that followed the coronavirus crash.

Back then, high-growth tech stocks roared the highest thanks to the juice provided by super-low interest rates. But in the cold light of 2022, those stocks suddenly looked the most expensive and the most vulnerable as the Fed hiked interest rates to their highest level in 15 years.

The pain did not discriminate much, though. Seven out of 10 stocks in the S&P 500 fell in 2022, as of Dec. 21. Many analysts expect more pain in early 2023 before things get better.

— Stan Choe

To see AP's full coverage of the markets, go to: https://apnews.com/hub/financial-markets and https://apnews.com/hub/off-the-charts

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BOND MARKET BLUES

It was one of the worst years in history for bond investors.

Decades-high inflation meant the fixed payments coming from bonds in the future won't buy as many groceries, gallons of gasoline or whatever else is rising in price.

The Federal Reserve's decision to raise interest rates also hammered bond prices. Because newly issued bonds were paying more in interest, the older bonds sitting in many investors' portfolios were suddenly much less attractive because of their lower yields.

The largest bond fund by assets, one from Vanguard that tracks the broad market, had lost 12.5% in 2022, as of Dec. 20. That's by far its worst year since its inception in 1987.

Historically bonds have held up better than stocks during downturns, offering some cushion for investors, but both tumbled in 2022.

— Stan Choe

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HOUSING MARKET SLUMPS

As 2022 began, the nation's housing market was still running red hot.

House hunters competed for the fewest homes for sale in more than two decades, fueling bidding wars that pushed prices sharply higher. The average rate on a 30-year mortgage was slightly above 3%, near historic lows.

Then mortgage rates started to climb, spurred by expectations of higher interest rates as the Federal Reserve began raising its short-term lending rate in a bid to tame inflation. By October, the average rate on a 30-year home loan soared above 7%, a 20-year high.

Higher mortgage rates combined with still-rising home prices make it difficult for many would-be buyers to afford a home. Sales of previously occupied U.S. homes saw their biggest sales slump in more than a decade.

— Alex Veiga

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IS TESLA ON AUTOPILOT?

You can't blame Tesla shareholders for feeling jilted.

CEO Elon Musk took over Twitter and appears consumed with turning around the social media company. With Musk's focus diverted, Tesla shares have lost more than half their value. And Tesla's dominance of the market for electric vehicles is waning.

Most of Musk's wealth is tied up in Tesla stock, which started falling in April when he disclosed a stake in Twitter. The collapse in the stock price has bumped Musk into second place on Forbes' list of the world's wealthiest people, behind cosmetic magnate Bernard Arnault.

After buying Twitter in October, Musk has cut half its staff and picked fights with public officials and others.

— Tom Krisher

For full coverage of Elon Musk, Twitter and Tesla, go to https://apnews.com/hub/twitter-inc

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CONSUMERS FEEL THE PINCH

The highest inflation in four decades is hitting consumers right in their wallets.

Households — especially at the lower end of the income spectrum — are likely depleting savings built up during the pandemic, with more pain to come should the economy tip into a recession. Credit card debt ballooned and rents rose in 2022, although there are signs housing costs will be coming down. While President Biden promised student borrowers relief of up to $20,000 this year, that debt cancellation policy is tied up in the courts.

Wages went up, although not at the same pace as inflation. Aggressive rate hikes by the Federal Reserve have pushed up the cost of borrowing money. But while the average rate on a credit card rose to 16.3% in August from 14.5% at the start of the year, according to the government, the average rate for a savings account is still just 0.2%; it's 0.9% for a one-year CD.

— Cora Lewis

For full coverage personal finance got to https://apnews.com/hub/financial-wellness and https://apnews.com/hub/personal-finance

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UKRAINE WAR IMPACT

Russia's invasion of Ukraine in February sent prices soaring for the commodities the world runs on: oil, natural gas, and wheat.

European prices for natural gas rose to 17 times their prewar levels after Russia choked off most supplies over the war. The result was an energy crisis that pushed inflation to record levels and left governments and utilities scrambling to find alternative supplies of gas ahead of winter heating season.

Global oil prices spiked as Western buyers shunned Moscow's crude, sending Brent to over $120 per barrel in May. Europe banned most Russian oil imports in December and the Group of Seven democracies imposed a $60 per barrel price cap on Russian exports.

Meanwhile record wheat prices spurred disastrous food inflation in poor countries.

By year end, lower prices for oil, natural gas and electricity had provided a bit of relief for drivers and homeowners.

To see full coverage of the Russia-Ukraine war, go to https://apnews.com/hub/russia-ukraine

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CHINA DITCHES ZERO COVID

China's economic growth and stock market slid in 2022 under pressure from pandemic controls and corporate debt, prompting the ruling Communist Party to ease off anti-disease restrictions and try to revive a struggling real estate industry.

The world's second-largest economy shrank by 2.6% in the three months ending in June compared with the previous quarter after Shanghai and other industrial centers shut down for up to two months to fight outbreaks.

Forecasters say annual growth might fall below 3%, among the lowest in decades. To cut the economic drag, the ruling party ended testing for millions of people and stopped requiring supermarkets and other businesses to track the health of employees and customers. Beijing also tried to revive real estate, China's biggest economic driver, by lending more to apartment buyers while trying to prevent a renewed rise in borrowing by developers.

— Joe McDonald

To see full coverage of developments in China, go to https://apnews.com/hub/china

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CRYPTO'S WILD RIDE

The year began with bitcoin above $45,000 and the crypto industry making further inroads among politicians and mainstream financial institutions. As 2022 ends, bitcoin is below $17,000, the industry's "savior" is in jail and Washington is fighting over how to regulate crypto.

With the steady, steep decline of crypto prices in the background, the dominoes began to fall with the collapse in May of Terra, a so-called stablecoin. Investors lost tens of billions of dollars and a number of crypto companies faced financial ruin. In stepped Sam Bankman-Fried, the young founder of crypto exchange FTX, who bailed out crypto lender BlockFi and crypto firm Voyager, earning him comparisons to the original J.P. Morgan.

Those plaudits evaporated when FTX unraveled in November. Questions about its financial strength prompted customers to request large withdrawals. Overwhelmed and, it turns out, underfunded, FTX filed Chapter 11 bankruptcy protection on Nov. 11. Bankman-Fried was arrested in the Bahamas and U.S. prosecutors hit him with an eight-count indictment.

— Ken Sweet

To see AP's full coverage of the cryptocurrency industry, go to: https://apnews.com/hub/cryptocurrency

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THE STREAMING WARS

Netflix, Warner Bros. Discovery and other big entertainment companies tumbled in 2022 as streaming services struggled amid increased competition and rising inflation stifled advertising spending.

Streaming services had to contend with a return to normal for many people who had been stuck at home because of lockdowns or other restrictions during the height of the COVID-19 pandemic. The sheer number of streaming options also left companies in a fierce fight for viewers' attention.

Streaming giant Netflix lost about half of its value after a steep drop in viewers in the year's first half. Disney felt the pinch from lower advertising revenue, but the diversified entertainment giant's stock held up better than most competitors.

Warner Bros. Discovery also struggled with advertising revenue, and it axed several films including "Batgirl" as it shifted strategy and looked to trim costs.

— Damian Troise