S&P 500 closes out dismal year with worst loss since 2008

On Dec 31, 2022

A man rides his bicycle past monitors showing Japan’s Nikkei 225 index at a securities firm in Tokyo, Friday. Asian stock markets followed Wall Street higher on Friday following encouraging U.S. employment data but were headed for double-digit losses for the year. (Hiro Komae, Associated Press )

Estimated read time: 5-6 minutes

NEW YORK — Wall Street capped a quiet day of trading with more losses Friday, as it closed the book on the worst year for the S&P 500 since 2008.

The benchmark index finished with a loss of 19.4% for 2022, or 18.1%, including dividends. It’s just its third annual decline since the financial crisis 14 years ago and a painful reversal for investors after the S&P 500 notched a gain of nearly 27% in 2021. All told, the index lost $8.2 trillion in value, according to S&P Dow Jones Indices.

The Nasdaq composite, with a heavy component of technology stocks, racked up an even bigger loss of 33.1%.

The Dow Jones Industrial Average, meanwhile, posted an 8.8% loss for 2022.

Stocks struggled all year as inflation put increasing pressure on consumers and raised concerns about economies slipping into recession. Central banks raised interest rates to fight high prices. The Federal Reserve’s aggressive rate hikes remain a major focus for investors as the central bank walks a thin line between raising rates enough to cool inflation, but not so much that they stall the U.S. economy into a recession.

The Fed’s key lending rate stood at a range of 0% to 0.25% at the beginning of 2022 and will close the year at a range of 4.25% to 4.5% after seven increases. The U.S. central bank forecasts that will reach a range of 5% to 5.25% by the end of 2023. Its forecast doesn’t call for a rate cut before 2024.

Rising interest rates prompted investors to sell the high-priced shares of technology giants such as Apple and Microsoft as well as other companies that flourished as the economy recovered from the pandemic. Amazon and Netflix lost roughly 50% of their market value. Tesla and Meta Platforms, the parent company of Facebook, each dropped more than 60%, their biggest-ever annual declines.

Russia’s invasion of Ukraine worsened inflationary pressure earlier in the year by making oil, gas and food commodity prices even more volatile amid existing supply chain issues. Oil closed Friday around $80, about $5 higher than where it started the year. But in between oil jumped above $120, helping energy stocks post the only gain among the 11 sectors in the S&P 500, up 59%.

China spent most of the year imposing strict COVID-19 policies, which crimped production for raw materials and goods, but is now in the process of removing travel and other restrictions. It’s uncertain at this point what impact China’s reopening will have on the global economy.

The Fed’s battle against inflation, though, will likely remain the overarching…