1. U.S. stocks fall
U.S. stocks experienced the biggest fall this year since 2009. As of December 19, S&P 500 index fell 19.9%, and the rising in past three years stopped. Moreover, the decline is much more severe than it happened in 2011, 2016 and 2019, and close to the year 2009 when the financial crisis happened.
The bearish second market and depleted liquidation are impacting the launch of new stocks from companies and venture capitalists.
2. Fed raises Fund rates
The Fed started to raise the rates to control inflation. The inflation resulted from the loose monetary policy due to the COVID-19 epidemic. The Fed rates raised 7 times in 2022, the most impressive one is the four consecutive rates raised by 75bps. The current fund rate is 4.25%-4.5% which is the highest federal funds rate since 2007. The loose monetary policy is also impacting the central banks of major countries such as China and Japan to raise rates accordingly.
The central banks need to make efforts to control inflation as well as prevent a recession, and they should find the balance.
3. Technology stocks fall
Technology stocks are hit severely due to the fallback of the global economy’s liquidity. Usually, technology companies are growth-type and the market is focusing on the growth potential in the future. However, rates hike is lowering those companies’ valuation.
For example, Netflix stock was quickly falling with the end of the work-from-home policy in developed countries, and the same happened on similar stocks with the work-from-home conception. META ( known as Facebook) stock fell because of the unexpectedly high cost, and the project can’t pay back to investors in short term. Amazon stock is also falling with the bearish mood spreading and the rising risk of recession. The stocks of the three technology companies fell by 50% in 2022.
4. Cryptocurrency prices fall
The current price of Bitcoin is under $17k, which is around a 75% fall compared to the ATH of $66K on November 10th, 2021. Below are the Bitcoin prices today in history.
In 2022, some disappointing events happened, and the whole market is in a bearish mood.
- LUNA crash
LUNA price fell from $80 to a few cents by May 12, 2022.
- FTX crash
FTX Trading Ltd., known as FTX ( Futures Exchange), was founded in 2019, headquartered in the Bahamas. FTX has been in Chapter 11 bankruptcy proceedings in the US court system since November 11, 2022.
The peak of FTX was in July 2021, and it had over one million users and was the third-largest cryptocurrency exchange in volume.
- Core Scientific filed for bankruptcy
Core Scientific Inc., is a crypto mining company, headquartered in Austin, Texas. It is listed as NASDAQ: CORZ, and its market capitalization was $46.47 million by November 30, 2022.
Core Scientific filed for Chapter 11 bankruptcy protection in December, and the stock is down 98% during the year.
5. Russia-Ukraine War
The Russia-Ukraine war began on February 24, 2022. The war results in inflation and economic recession.
With the outbreak of the war, the prices of gas and oil raised significantly which was $123 on Mar 8, 2022, then down to $73 currently. The war also impacted the price of food in a short term.
6. Recession risk in Europe is rising
European economy is facing the rising risk of recession by the impact of Russia-Ukraine conflict, power supply chain strain and rising rates by central bank.
European Central Bank has raised interest rates by 200bps in three meetings, and it’s the fastest record ever.
According to the 2023 macroeconomic outlook of the Institute of International Finance, the slowdown in economic growth will be dominated by Europe next year. Because Europe is the major region affected by the war conflicts, and the market confidence dropped sharply. The euro zone economy is expected to contract by 2% next year.
7. HK stocks rebound impressively
Hong Kong Stocks were weak due to global economic recession but rebound impressively afterwith the new epidemic control policy operated.
The Hang Seng Index rebounded by 35% from the bottom in October. Stocks such as medicine, technology and real estate were the top rebounders. Some stocks experienced 200% rising in short term.
8. breakthrough in stock audit cooperation between China and U.S.
The U.S. and Chinese government reached a Statement of Protocol Agreement regarding cooperation on inspecting the audit work papers of U.S.-listed Chinese companies on August 26, 2022.
On December 15, 2022, the PCAOB ( Public Company Accounting Oversight Board) announced that it has secured complete access to inspect and investigate audit firms in mainland China and Hong Kong for the first time in history. At the same time, some Chinese stocks experienced the historical rebound.
9. Investments inflow and outflow from China
The first net outflow happened from Mar 9, 2022 to June 1, 2022, and the second happened from Oct 24, 20222 to November 10, 2022. As of December 20, the cumulative net inflows are $118 billion ( 825 billion yuan) which is at the lowest record since 2016. Comparing to the net inflows which are $618 billion in 2021, this year is down 81%.
10. Global investors are bullish on Chinese stocks
With cancelling the zero-Covid policy, the daily life and work in China are back to normal progressively. Chinese economy is starting to recover in next year.
What’s more, the National Immigration Administration of China announced on December 27, 2022 that they will optimize policies and measures of immigration administration starting from January 8, 2023. The policy will resume in an orderly manner the acceptance and examination of the Chinese citizens’ application for ordinary passports for the purposes of tourism and friends-visiting abroad. Same will be resumed for foreign visitors.
What’s Ahead in 2023
Here comes the economy outlook of 2023 by JPMorgan:
- U.S. economy likely to slow further in 2023, enter a mild recession
- Fed’s hiking cycle nearing the endgame; terminal funds rate expected to reach 5%
- Consumers enter 2023 on solid financial footing, but with less cushion than in 2022
- Manufacturing sector headwinds are building; services still benefitting from normalization
- Housing market activity likely to stay low with mortgage rates high
- Inflation set to fall quickly from peak, but remain above the Fed’s 2% target at end of 2023
- Labor market should start to loosen amid slower growth environment
- A stronger dollar has mixed implications for the economic outlook
- Supply chains getting back to (new) normal
- Expect improved credit market conditions in 2023, but also higher spreads and defaults