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Stock, Bond and Crypto Investors Remain on Edge After Brutal Year for Markets - Wall Street Journal.

This year was a bust for markets as Fed looms over debate on what is ahead in 2023 says Akane Otani for The Wall Street Journal - 30.12.22

Stocks tumbled. Bonds were hit by their worst selloff ever. And cryptocurrencies were eviscerated, leading to the collapse of industry giants including FTX.

The tumult across global markets had a chilling effect on Wall Street and beyond. Companies that hoped to go public scrapped their plans. Banks that typically cash in on fees for advising on deals and initial public offerings are slashing bonuses because of the drought. And retirees saw their savings shrink.

The S&P 500 fell 19% for the year, while the Dow Jones Industrial Average dropped 8.8%. The Nasdaq Composite declined 33%, hurt by a steep slide in technology shares. All three indexes logged their biggest declines since 2008, the year Lehman Brothers collapsed. Trading was quiet ahead of the holiday weekend, with stocks ending a touch lower.

Bonds had an even more bruising year. The yield on the 10-year U.S. Treasury note—which influences everything from mortgage rates to student debt—climbed to 3.826%, from 1.496% at the end of 2021. Yields rise as bond prices fall.

How did things go so badly? In short, investors and policy makers were burned by bets that 2021’s inflation surge would prove to be transitory.

Instead, price pressures were exacerbated by Russia’s invasion of Ukraine, which sent oil and gas prices soaring in February and March. And then, even as energy prices moderated, inflation stayed stubbornly high. In a bid to bring inflation back down, the Federal Reserve executed its most-aggressive interest-rate increases since the 1980s.

Tighter monetary policy led investors to flee the most popular bets across markets from previous years. When interest rates were ultralow, as they were for more than a decade after the 2008 financial crisis, it cost investors less to bet on shares of often-unprofitable companies promising to deliver big growth years down the line.

Now, with short-term bonds, money-market funds and other cash-like investments offering their highest yields in years, many money managers are reluctant to bet on risky investments with uncertain payoffs.

Fed raises interest rates for the ​first of seven times this year. That explains why so many technology-driven companies were hit so hard this year. The NYSE FANG+ Index, which tracks Meta Platforms Inc., Inc., Apple Inc., Netflix Inc. and Alphabet Inc., among other stocks, was down 40% year to date.

Tesla Inc. shares suffered their worst year ever as Chief Executive Elon Musk was embroiled in more controversies at Twitter Inc., for which he took ownership in October


“We were a little bit spoiled in the past because we were going through a long period since especially the 2000s of rising equity valuations [and] relatively low volatility that only got interrupted during the financial crisis,” said Maria Vassalou, co-chief investment officer of multiasset solutions at Goldman Sachs Asset Management.

That dynamic has been upended by the Fed’s policy turn this year, she added.

For the full article in pdf, please click here:

Stock, Bond and Crypto Investors Remain on Edge After Brutal Year for Markets - by Akane O
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Bigger market swings allowed stock pickers who diverged from the crowd to make a comeback. ANDREW KELLY/REUTERS

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