Phew. Stocks ended a tough year in a dismal fashion. Just as they kicked off the year in January with a slide, markets sold off into the holiday week. In December, the S&P 500 fell more than 6%. During the long bull run since the March 2009 bottom, the S&P rose more than 600 percent.
The S&P 500’s energy sector closed out the year up 59%, making it the only group within the index that didn’t post a loss. That’s the first time that only one sector within the S&P 500 has risen, according to data going back to 1990.
Everything changed this year when policymakers at the Federal Reserve accelerated how fast they raised interest rates. There were several sharp bear-market rallies, but the January selloff set the stage for the entire year.
The Fed’s efforts to tame the worst inflation in 40 years appear be working: Price increases have been slowing. Here, we believe inflation has peaked and will continue to fall, especially if the Fed continues to aggressively raise rates in 2023. What we have witnessed over the past 36 months triggered a generational shift in markets, starting with the pandemic that shocked global markets and propelled policymakers to induce generous stimulus. The inflation, once a non-issue for many younger Americans, rocked the U.S. – and the world.
This sequence of events drove the Fed to start tightening, starting in March, at a rate faster than at any time in a generation. By raising rates, borrowing costs have increased, slowing demand and tempering further price increases. The yield on 10-year U.S. government bonds has soared 2.3 percentage points this year, its biggest annual rise on record for data going back to 1962. Thus, borrowing rates on mortgages, company bonds, and other debt rose sharply.
Tech companies were hit especially hard. Because growth had previously been supported by low-interest rates, higher costs in 2022 meant lower profits. The price of Bitcoin fell nearly 70%, in line with Tesla’s disastrous 2022. Its shares fell 70%, its worst performance since the company went public in 2010, and only the second year the stock has declined in value. Tesla has been on Tom Lee’s Granny Shots list for a while, though, and it’s still up nearly 500% over the last five years (and nearly 10,000% since its IPO 12 years ago).
As we enter 2023, the uncertainty lies around how much further the Fed will go. Amid signs of inflation cooling, Tom Lee sees a greater likelihood that the central bank will pause further rate increases soon, so that it may allow the effects of the current high-interest rates to seep into the economy. Others aren’t so sure, citing still well-above-normal inflation that continues to dig into Americans’ wallets. Regardless of what happens next year, our goal is to continue to inform and educate you to be a better investor and decision-maker.
Here are a few charts that tell the story of 2022:
It was the year of inflation and the Fed, though the Fed’s aggressive rate hikes appears to be causing a sharp decline in CPI.
Zooming out from the last few years, CPI and central bank policy rates are still nowehere near where they were 40 years ago.
2022 was the year of energy, and then everything else. Oil and gas companies posted record profit this year despite ESG-related concerns:
The fears of independent public-health experts appear to have come to pass in China, as the country’s abrupt exit from Xi Jinping’s zero-COVID restrictions caused a nationwide surge in COVID infections and deaths. Chinese authorities have stopped releasing detailed official COVID statistics, insisting that the number of infections is “relatively low” and reporting COVID death rates that are statistically implausible. Independent epidemiologists estimate as many as 1 million new infections and 5,000 deaths a day before the travel-intensive Chinese New Year holiday coming up in a few weeks.
And finally: It might have been a tough year for investors, but 2022 was a good year for Santa. According to statistics from The New York Times, wages for Santa impersonators rose 12% YoY this holiday season.
Ho ho ho, indeed. Happy Holidays everyone. May you and your family find peace and prosperity in 2023 and beyond.
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