Pain, few gains for investors as markets slumped in 2022 – Marshalltown Times Republican

FILE – An American flag is displayed on the facade of the New York Stock Exchange on June 29, 2022, in New York. Investors had few places to hide in 2022: Stocks and bonds both nose-dived and crypto tanked. Pocketbook issues were front and center for consumers as prices for food, energy and rent jumped. (AP Photo/Julia Nikhinson, File)

Investors found few, if any, safe havens 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.

Consumers paid more for energy, food and just about everything else. Borrowing to buy a home or a car also got costlier.

On Wall Street, the benchmark S&P 500 index fell into a bear market by dropping more than 20% from the record high set in early January. The energy sector was the lone winner, while technology stocks tumbled.

A rout in the bond market was particularly painful turn for fixed-income investors. Cryptocurrency investors weren’t spared either.

INFLATION AND THE FED

Central banks’ response to inflation overshadowed financial markets in 2022 and could very well do so again next year. The Federal Reserve started raising rates in March, and would eventually raise rates seven times by a total of 4.25 percentage points.

By year-end, there were hopeful signs on inflation as prices for goods fell and rents started declining. But tough talk from the Fed in December took the steam out of a fourth-quarter rally for stocks.

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. Seven out of 10 stocks in the S&P 500 fell in 2022, as of Dec. 21.

BOND MARKET BLUES

It was one of the worst years ever 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 Fed’s decision to raise interest rates also hammered bond prices.

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

HOUSING MARKET SLUMPS

As 2022 began, the average rate on a 30-year mortgage was slightly above 3%, near historic lows. By October, the average rate on that 30-year home loan had soared above 7%, a 20-year high.

Higher mortgage rates combined with still-rising home prices to 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.

IS TESLA ON AUTOPILOT?

You can’t blame Tesla shareholders for feeling jilted. With CEO Elon Musk’s focus diverted by his acquisition of Twitter, Tesla shares lost more than half their value.

Most of Musk’s wealth is tied up in Tesla stock, which started falling in April when he disclosed a stake in Twitter. The falling stock price bumped Musk into second place on Forbes’ list of the world’s wealthiest people, behind Bernard Arnault, chairman of luxury goods maker LVMH.

CONSUMERS FEEL THE PINCH

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

Households coping with higher prices are likely depleting savings built up during the pandemic. Wages went up, although not at the same pace as inflation. Credit card debt ballooned, and rents increased.