Stocks fall, Treasury yields rise upon final 2022 trading day

By Sinéad Carew and Carolyn Cohn

NEW YORK, LONDON (Reuters) – Wall Street equity indexes lost ground on Friday, the last trading day of 2022, while Treasury yields were gaining and oil futures were up slightly as investors braced for a myriad of worries for 2023 with economic growth and the U.S. Federal Reserve rate hiking path all in question.

The dollar, a beneficiary of rising U.S. interest rates, was down slightly on Friday but on track for a 2022 gain of 8%, its biggest annual percentage increase since 2015.

The U.S. 10-year Treasury yield rose on the day and was poised to close out the trading year with its biggest annual increase in decades, pushed higher by aggressive Fed rate hikes.

The Fed and central banks around the world have been increasing interest rates to fight soaring inflation caused by issues including an energy crisis and supply chain problems stemming from the COVID-19 pandemic and oil producer Russia’s invasion of Ukraine.

“Bond investors bid a not so fond farewell to 2022 as theylook forward to a much more attractive 2023,” said Bryce Doty,senior portfolio manager at Sit Fixed Income Advisors inMinneapolis. “While stocks will struggle with slowing economic activityand the loss of inflated earnings from inflation, bonds areearning a decent income with the potential for priceappreciation as yields come off their peak.”

Benchmark 10-year notes were up 4.7 basis points to 3.882%, from 3.835% late on Thursday. The 30-year bond was last up 3.5 basis points to yield 3.9585%, from 3.923%. The 2-year note was last was up 6.3 basis points to yield 4.4299%, from 4.367%.

In stocks, battered growth stocks and Nasdaq leading declines dragged Wall Street’s main indexes lower.

The Dow Jones Industrial Average fell 236.42 points, or 0.71%, to 32,984.38, the S&P 500 lost 30.26 points, or 0.79%, to 3,819.02 and the Nasdaq Composite dropped 86.50 points, or 0.83%, to 10,391.59.

The S&P 500 was eyeing a roughly 20% fall for 2022 while Nasdaq was off about 33% and the Dow Jones index was heading for a 9% drop for the year.

MSCI’s world equity index, down 0.57% on the day so far, was heading for a roughly 20% annual fall, its largest since the global financial crisis of 2008, when it slid more than 43%.

European stocks fell 1.01% on the day as surging COVID-19 cases in China stoked concerns over global economic growth, and they were on course for their biggest annual drop since 2018.

China’s health system has been under stress due to soaring cases since the country started dismantling its “zero-COVID” policy at the start of the month, with Spain and Malaysia on Friday joining countries imposing or considering imposing curbs on travellers from China.

Chinese leaders have pledged to step up policy adjustments to cushion the impact of surging infections on businesses and consumers.

In currencies, the dollar has gained more than 8% over the year, but it lost more than 7% this quarter for its biggest quarterly percentage decline since the third quarter of 2010, as some investors bet the Fed may slow rate hikes.

The dollar index fell 0.173%, with the euro up 0.12% to $1.0674. The Japanese yen strengthened 0.86% versus the greenback at 131.87 per dollar, while Sterling was last trading at $1.203, down 0.18% on the day.

Oil was on track for a second straight annual gain in a volatile year marked by tight supplies due to the Ukraine war and concerns about demand from the world’s top crude importer, China.

U.S. crude recently rose 0.4% to $78.71 per barrel and Brent was at $83.96, up 0.6% on the day. [O/R]

Gold was barely higher on Friday but looked likely to wrap up its biggest quarterly gain since June 2020 after the Fed’s fast-paced tightening cycle had tempered bullion’s progress for the year.

Spot gold added 0.2% to $1,817.89 an ounce. U.S. gold futures gained 0.15% to $1,822.30 an ounce.

(Reporting by Sinéad Carew, Chuck Mikolajczak, Carolyn Cohn, Ankur Banerjee; Editing by Simon Cameron-Moore, Sam Holmes, Philippa Fletcher, Chizu Nomiyama and Josie Kao)