On Wall Street, the Nasdaq, the S&P 500 and the Dow Jones are preparing to end 2022 reporting the worst trend since 2008, sunk by the obsession-fear of galloping inflation in the United States and of further interest rate hikes by Jerome Powell’s Fed.
The Nasdaq was definitely the stock index that stood outwith a tumble of more than -33% since the beginning of the year.
But European equities didn’t go well this year either, with lo Stoxx 600 Index which reported the worst trend since 2018, starting the last session of 2022 (today) with a drop of more than 12% (in 2018 the loss had been equal to -13.24%), after the +22.25% of the 2021.
especially thebenchmark index of Piazza Affari Ftse Mib is set to end 2022 with a 12.8% YTD decline.
Patrick Armstrong, chief investment officer presso Plurimi Wealth LLP, he commented during the broadcast “Squawk Box Europe” from CNBC what happened to European equities, during this 2022:
“What happened this year was triggered by the Fed. Quantitative Tightening, higher interest rates that were buoyed by inflation…everything that had received cash support was sold.”
About 2023, “I don’t think the Fed will determine the market, I think it will be the companies, the fundamentals, the companies that will be able to make profits, to defend their margins, which will probably go up (on the Stock Exchange)”.
With inflation galloping to decades-highs, central banks around the world have raised interest rates, particularly depressing the prices of growth stocks (factor that brought down the Nasdaq) and the share market in general.
The fear of inflation reluctant to test the peak, in particular in the United States and in the euro area (but also in the United Kingdom) and the further monetary tightening launched by the Federal Reserve, from the Bce and from Bank of England, they also penalized government bonds.
Not only Nasdaq & Co, focus on government bonds
In particular for the sovereign debts of the Eurozone, 2022 was a dramatic year.
BTP is Bund, spread is Tassi. Outlook 2023
Rates on 10-year BTPs have shot up today over 4.6%, up to 4.645%while the Spanish ones jumped al 3,591% after the release of the consumer price index of Spain responsible, according to Jussi Hiljanen, head of European rates strategy at SEB, for yet another increase in the yields of sovereign bonds in the Eurozone in today’s session. Keep an eye on the interest rate trend from 2020 to today.
By the way, in the last few days, there was no shortage of hawkish statements of the members of the Governing Council of the ECB, with Isabel Schnabel, German representative of the Governing Council of the European Central Bank, who stated clearly that the Eurotower must further raise interest rates; Dutch central bank governor Klass Knot also told the Financial Times that “for us, the risk of doing too little is still the greatest risk”.
And so today two-year Bund rates rose, according to Reuters surveys, up to 2.714%, the highest since October 2008which was also touched upon in Tuesday’s session.
ECB and Fed: Algebris view on terminal rates
“Inflation is slowing down, yet monetary policy remains tight – they wrote in the report “Fears descending in 2023” Algebris analysts.
According to them “excluding Japanthe G10 central banks have already completed 80% of their hike cycles”.
Based on this premise, Algebris believes that, with their rate hikes, “the Fed and the ECB will reach a peak of 5% and 3% respectively in the second quarter”.
Said this, “inflation will stabilize above the central banks’ targettherefore the cuts in 2023 would be premature: the most probable scenario is therefore that of a period of stable rates“.
In general, Algebris points out that, “looking at the relationship between real rates and inflationthe United States and Canada appear to be the developed countries that most lend themselves to a change of course, while Brazil, Colombia and Chile stand out among the emerging countries”.
“The Eurozone and the UK – instead – are the regions with the greatest risk of rising interest rates”.
BTP between debt and emissions boom: another difficult year?
For Italy, the excessively high public debt issue, combined with the need – also of other euro area countries – to proceed in 2023 with a boom in new government bond issues at a time when the ECB has already announced that it will start pulling the plug, the sore point remains.
Just think that rates on two-year BTPs have risen beyond the 3.20% threshold and that those on 10-year bonds are approaching the 5% threshold.
Also watch out for BTP-Bund spread chart, which illustrates the trend of the differential in the last two years.
But of course, beyond the euro area and the European Union itself, things are not going well in the United Kingdom either: UK government bonds, known as Gilts, jumped this year from 0.946% to a record 4.632%, in what was the most volatile year since 1982, according to the Reuters findings.
Wall Street: a terrible year for the Nasdaq in 2022
Today, Friday December 30, is the last day of trading on Wall Street, as well as in Europe and much of Asia.
Let’s see how il Dow Jones Industrial Average, lo S&P 500 e il Nasdaq Composite have performed to date, also referring to the weekly and monthly trend.
Dow Jones: -8,58% nel 2022
The blue chip index trended virtually flat for the week, climbing just +0.05%, up for the second consecutive week.
In December, the Dow Jones lost 3.96%, interrupting a bullish trail that lasted two consecutive months.
In the quarter the price list jumped instead by 15.65%after three consecutive quarters of losses.
On a year over year basis, the Dow outperformed Wall Street, limiting the damage to an 8.58% YTD (year to date) decline.
However, the index broke a three-year uptrend, posting its worst year-on-year performance since 2008, when it slid 33.84%.
The numbers of the S&P 500
Wall Street’s benchmark index, the S&P 500, it gained 0.12% in the week that is about to end, and is about to break a three-week negative trend.
Lo S&P 500 lost 5.66% in December interrupting the bullish trail of the previous two months.
On a quarterly basis, the list rose by 7.35% in the fourth quarter of 2022after three consecutive quarters of declines.
Since the beginning of 2022, the loss was 19.24%.
Even the S&P 500, on an annual basis, is ready to interrupt a positive trend that lasted three years, reporting the worst performance since 2008, when it plunged 38.49%.
Nasdaq: plunge of more than -33%
On a weekly basis, the Nasdaq trend is down 0.14%, down for the fourth consecutive week.
In December, the index lost 8.63%, interrupting a two-month bullish trail.
On a quarterly basis the technological index lost 0.92% and is heading for its fourth consecutive quarter of losses, for the first time since 2001.
Since the beginning of the year, the Nasdaq plummeted 33.03%, thus interrupting the buy trend of the last three years, like the Dow Jones and the S&P 500, and reporting the worst loss since 2008, when it suffered a 40.54% crash.
The Fed, the US central bank led by Jerome Powell, has launched well this year seven monetary tightenings, for a total of 425 basis points, which led the rates on fed funds, in the last act of 2022, to rise to the range between between 4.25% and 4.5%, a record for the last 15 years.