2022 Stock Market Review

A year dictated by the Federal Reserve

Image from Canva

It's that time of year again; time to look back on 2022 and reflect, to help us be better prepared for the future.

2022 was a terrible year for the market. It wasn't as up and down as 2020, and not at all positive like2021.

Unfortunately, 2022 can be defined by two topics: inflation and interest rates.

Jerome Powell deserves 2022's award for biggest market influencer of the year.Dustin Moskovitz, CEO of Asana, had a quote that perfectly sums up 2022,

I’m CEO of the Asana company, but lately, Jay Powell has been CEO of the stock price

Returns for the Year

After a nearly 27% gain in 2021, the S&P 500 had a negative year, losing almost 20%.

The tech-heavy NASDAQ fared worse, while the Dow Jones was the best of the three.

Image from author | Data from Yahoo Finance

The peak price for 2022 was on January 3, the first trading day of the year. After that, it steadily declined in value.

Image from Yahoo FinanceInflation

Starting at the end of 2021, we saw inflation creeping up to uncomfortable numbers. And by December 2021, the Federal Reserve finally ditched its"transitory" description of inflation.

After the easy money policies enacted in 2020 and kept in place for 2021, inflation roared rampant in 2022. While everyone is sick of hearing it by now, inflation was a significant factor in business and personal spending.

It also influences the actions of the Federal Reserve, which in turn has dedicated markets this year.

Data from BLS | Data recorded at the time of monthly releases

After a whole year, inflation is finally below where it started in 2022. But don't expect deflation; those elevated prices will never return to pre-covid levels.

The Federal Reserve and Interest Rates

Jerome Powell has clearly stated that tackling inflation is the Federal Reserve's number one priority. They are even willing to send the economy sputtering if that is what is needed.

The Federal Reserve has raised interest rates at seven of the eight meetings this year and will continue to raise rates in 2023. The rates currently sit at 4.33%, and the current stated goal is 5.125%.

As the Fed has become more hawkish — raising rates and creating an expectation that rates will remain high for an extended duration — markets have declined. The speed of the rate hikes we've seen in 2022 also contributes to what has spooked investors.

SourceSector Gains

Below is a table showing the gains for each sector from 2022 and 2021.

Image from author | Data from Yahoo Finance

Some of these numbers from the 2020 End — 2022 End may be surprising, such as the gains in energy or losses in technology and communications services. Not shown in this image are the results of 2020, which were the opposite of 2022.

Energy and utilities have fared very well in 2022 due to the uncertainties around supply. The Russia — Ukraine War shocked the energy markets in 2022, and it will take years to return to "normal."

Consumer Staples, such as P&G, PepsiCo, and Costco, fared well in 2022 compared to the market. As people rein in spending for fears of a recession, they will still need these products and shop at these stores.

Consumer Discretionary, on the other hand, had a terrible year. The category is skewed as Amazon and Tesla are the two largest holdings; their stocks returned to reality after being pumped up in 2020 and 2021. Other big names in the sector, such as Nike and Home Depot, also fared poorly.

Communications Services and Information Technology got dragged down by the tech giants.

Crypto  $ProShares Bitcoin Strategy ETF(BITO)$

While crypto is separate from the stock market, it's worth covering briefly, as many investors put money into crypto in previous years.

After great returns in 2020 and 2021, the crypto market crashed in 2022. Below are some of the biggest names in the industry.

Image from author | Data from CoinMarketCap pulled 12/31/2021 and 12/29/2022, respectively

Besides the abysmal returns, the crypto industry had headlines for several other reasons. Several big-name exchanges — Celsius and BlockFi — filed for bankruptcy in 2022.

And, of course, there is FTX and its founder Sam Bankman-Fried.

Russia-Ukrainian War

At the beginning of 2022, the relationship between neighboring countries Russia and Ukraine became tense. Then in late February, Russia invaded Ukraine.

Markets reacted and were down slightly as a result. The war between the two countries is still ongoing, and it doesn't seem to have an end in sight.

The biggest impact was felt in theenergy industrysince Russia is a large producer of oil and natural gas.

Energy Sector   $S&P 500(.SPX)$

As previously mentioned, energy was the best-performing sector in 2022. But it's worth digging a little deeper into.

The best-performing stocks in the S&P 500 were all energy companies.

Below are YTD results before December 29 market open.

Occidental Petroleum has been the biggest gainer of the year in the S&P 500, up 122% year-to-date.

Constellation Energy (CEGDX) is in second place, up 109% and Hess (HES) comes in third with a gain of 94%. Rounding up the top ten are Marathon Petroleum (MPC), Exxon (XOM), Schlumberger (SLB), APA (APA), First Solar (FSLR), Halliburton (HAL) and Marathon oil (MRO), all up between about 70 and 80% this year.

Within energy, the oil and gas stocks (several listed above) performed far better than electric companies, such as NextEra, Exelon, or Duke.

Is the Economy in a Recession?

It depends on who you ask. After seeing negative GDP growth in two consecutive quarters (Q2 and Q3), most expected the current environment to be declared a recession.

But the National Bureau of Economic Research has decided we can not yet call this a recession.

While GDP is down, the unemployment rate is still below 4%. This will change in 2023, as the Federal Reserve is making it an objective to increase the unemployment rate. Those in tech have already felt the layoffs in the second half of 2022.

Everyone is either excepting a recession in 2023 or assumes we are already in one.

Electric Vehicles

One of the biggest losers in 2022 was Tesla. But it's not the only electric vehicle stock that got slaughtered. Almost all the players in the industry had terrible years after having a lucrative 2020 and 2021.  $Tesla Motors(TSLA)$  $NIO Inc.(NIO)$  $Li Auto(LI)$

Competitors such as Nio, Rivian, and Lucid were down 70–85% in 2022, in line with Tesla's loss.

2022 was the year of snapping back to reality; Jerome Powell decided it was time to raise interest rates. And as a result, the easy times we saw in 2021 and the second half of 2020 ceased to exist.

Let's see what 2023 has in store.

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