What drives the markets

US stocks traded lower on Friday afternoon, on pace to close the last trading session of 2022 with weekly and monthly losses.

Stocks and bonds have been crushed this year as the Federal Reserve raised its benchmark interest rate more aggressively than many expected, as it sought to crush the worst inflation in four decades. The S&P 500 is on track to end the year with a loss of nearly 20%, its worst annual performance since 2008.

“Investors were on edge,” Mark Heppenstahl, chief investment officer at Penn Mutual Asset Management, said in a phone interview Friday. “It seems as if being able to bring prices down might be a little easier given how bad the year has been.”

Stock indices have fallen in recent weeks as the recent rally inspired by hopes in the Fed’s policy focus faded in December after the central bank indicated it would likely wait until 2024 to cut interest rates.

On the last day of the trading year, the markets were also hit by selling to capture losses that could be written off from tax bills, a practice known as tax harvesting, according to Kim Forrest, chief investment officer at Bouquet Capital Partners. .

Forrest added that an uncertain outlook for 2023 has also weighed in, as investors worry about the strength of corporate earnings, the US economy and consumer as the fourth-quarter earnings season approaches early next year.

“I think the Fed, and then earnings in mid-January — they’ll set the tone for the next six months. Until then, it’s anyone’s guess.”

The US central bank has raised its benchmark interest rate by more than four percentage points since the start of the year, pushing borrowing costs to their highest levels since 2007.

The timing of the first Fed rate cut will likely have a significant impact on markets, according to Forrest, but the outlook remains uncertain, even as the Fed tries to signal that it plans to keep interest rates higher for longer.

On the economic data front, the Chicago PMI for December, the latest major data release for the year, Came stronger than expected. Climbing to 44.9 from 37.2 in the previous month. Readings below 50 indicate contraction.

In the coming year, Heppenstahl said, “we are likely to shift toward concerns about economic growth rather than inflation.” “I think the decline in growth will eventually lead to an even greater drop in inflation.”

Read: Stock market investors face 3 recession scenarios in 2023

Eric Sterner, chief information officer at Apollon Wealth Management, said in a phone interview on Friday that he expects the US to fall into a recession next year and that the stock market could see a new bottom as companies likely review their earnings. “I think the earnings outlook for 2023 is still very high,” he said.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite were all on pace Friday afternoon posting weekly losses of around 1%, according to FactSet data, at last check. For the month, the Dow was down about 5%, the S&P 500 was down about 7% and the Nasdaq was about to crash down about 10%.

Read: Value stocks are outperforming growth stocks in 2022 by a large margin historically

As for bonds, Treasury yields rose on Friday as the US sovereign debt market was set to post its worst year since at least the 1970s.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.879%

It rose about four basis points on Friday at 3.88%, according to FactSet data, in the latest check. Ten-year yields jumped about 2.34 percentage points this year through Thursday, on track for the biggest annual gain ever based on data going back to 1977, according to market data from Dow Jones.

Meanwhile, the yield on the two-year note
TMUBMUSD02Y,
4.423%

Up about 3.64 percentage points in 2022 through Thursday to 4.368%, 30-year return
TMUBMUSD30Y,
3.971%

It jumped 2.03 percentage points over the same period to 3.922%. That marks the largest increase in a calendar year for each based on data going back to 1973, according to market data from Dow Jones.

Outside the US, European stocks capped their biggest percentage drop in a calendar year since 2018, with the Stoxx Europe 600
xxxp,
-1.27%And the
It is an index of euro-denominated stocks, down 12.9%, according to market data from Dow Jones.

Read: A downturn in the US stock market is trailing these international ETFs as 2022 draws to a close

Companies in focus

• Tesla Inc
  Tesla,
  +1.12%

  Shares fell 0.4% after that Worst losing streak in more than four years.

• Southwest Airlines
  luv,
  +0.87%

  Stocks traded steadily even with The company said it expected Its failure to travel during the holidays will affect its fourth-quarter earnings.

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• Las Vegas Sands Corp.
  LVS,
  +2.10%

  It was among the top performers in the S&P 500 on Friday, with its shares up 1.2%, as it confirmed the renewal of gaming franchises in Macau.

Steve Goldstein contributed to this article.