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US stocks closed out 2022 lower on Friday, capping a year of sharp losses driven by aggressive interest rate hikes to curb inflation, recession fears, the Russia-Ukraine war and rising concerns over COVID cases in China.
Wall Street’s three main indexes booked their first yearly drop since 2018 as an era of loose monetary policy ended with the Federal Reserve’s fastest pace of rate hikes since the 1980s.
The benchmark S&P 500 (.SPX) has shed 19.4% this year, marking a roughly $8 trillion decline in market cap. The tech-heavy Nasdaq is down 33.1%, while the Dow Jones Industrial Average has fallen 8.9%.
The annual percentage declines for all three indexes were the biggest since the 2008 financial crisis, largely driven by a rout in growth shares as concerns over Fed’s rapid interest rate hikes boost US Treasury yields.
“The primary macro reasons … came from a combination of events: the ongoing supply chain disruption that started in 2020, the spike in inflation, the tardiness of the Fed beginning its rate tightening program in the attempt to corral the inflation,” said Sam Stovall, chief investment strategist at CFRA Research.
He also cited economic indicators pointing to recession, geopolitical tensions including the Ukraine war, and China’s surging COVID cases and uncertainties over Taiwan.
Growth stocks have been under pressure from rising yields for much of 2022 and have underperformed their economically linked value peers, reversing a trend that had lasted for much of the past decade.
Apple, Alphabet, Microsoft, Nvidia, Amazon.com, Tesla are among the worst drags on the S&P 500 growth index, down between 28% and 66% in 2022.
The S&P 500 growth index has fallen about 30.1% this year, while the value index is down 7.4%, with investors preferring high dividend-yielding sectors with steady earnings such as energy.
Energy has recorded stellar annual gains of 59% as oil prices surged.
Ten of the 11 S&P (.SPX) sector indexes dropped on Friday, led by real estate and utilities.
