Wall Street kills its darlings

It appears that Wall Street has also caught on to the concept. This was a miserable year for stocks overall -- the S&P 500 is down about 20% in 2022 -- but the big surprise is the almost Shakespearean downfall of companies that have dominated markets for years.

Investors are rushing to kill their darlings -- er, sell their stocks-- and even safe-havens like Apple and Intel are getting crushed in the stampede.

What's happening: It's been a shaky year full of economic uncertainty, geopolitical chaos, elevated inflation and a hawkish Fed. It's no wonder that markets haven't fared well -- the only thing driving stocks overall from oblivion this year has been the energy sector, up about 60% year-to-date.

But what's been most surprising is that market-cap titans, traditionally expected to weather storms on Wall Street well, haven't held up against the rising macroeconomic tides.

Stalwarts -- the large, well-established companies that offer long-term growth potential, got crushed. Just look at Apple. Even the Oracle himself, Warren Buffett, thought it was a good idea to purchase more Apple shares in early 2022, but the stock is now down 29% for the year (Buffet's Berkshire Hathaway is doing fine, though, up over 3% this year). Intel, another blue chip, has fallen 51%.

Tech companies have long been seen as invincible, essentially money-printing machines by investors. That has not been the case this year as Alphabet stock fell nearly 40% and Microsoft by 28%. Facebook parent company Meta, down 64% this year as it pursues virtual reality dreams, experienced the largest drop in market value over a single day of trading in February. The company lost $232 billion.

Other recent darlings have been sent sputtering this year -- Moderna was one of the top performing stocks of 2021 thanks in large part to its covid vaccine, and now it's amongst the worst, down 24% this year.

Even Walmart, the big-box chain known for weathering many economic storms, is in the red this year, down just under 2%.

Surprising to the upside: There have been some companies that have been able to keep chugging along in 2022. Consumer staples posted their best relative performance to the S&P 500 since 2008 this year. Coca-Cola shares, up nearly 8%, trounced markets this year. Snack food company Mondelez is also up 1.5%.

IBM, meanwhile, has managed to grow in a year when the entire tech sector is faltering -- the company is up nearly 4%. The company is "trading well above its historical range," wrote Bernstein Research analysts in a recent note. But "given its defensive characteristics and historical performance, we believe that IBM is likely to fare well if we continue to have pressured markets, and likely to lag major indices if we enter a recovery period," they said.

The bottom line: Markets have been full of surprises this year. Blue chips are no longer blue, and the safe-havens that were surefire bets just one year ago have plummeted. The question is whether this new market order will ebb in the year to come or if investing strategies have been permanently altered.

Are consumers losing steam?

American shoppers are holding the weight of the economy on their shoulders.

Just last month Bank of America CEO Brian Moynihan told CNN that the continued strength of the US consumer is nearly single-handedly staving off recession. Consumer spending is a major driver of the economy, and the last two months of the year can account for about 20% of total retail sales — even more for some retailers, according to National Retail Federation data.

But while American bank accounts are still fairly robust, they're beginning to dwindle. In the third quarter of 2022, credit card balances jumped 15% year-over-year. That's the largest annual jump since the New York Fed began keeping track of the data in 2004.

"Against this backdrop, we expect consumers will rein in their spending further in coming months,'' said Gregory Daco and Lydia Boussour, economists at EY Parthenon. "Real consumer spending should see modest growth in the final quarter of the year, but we expect it will barely grow in 2023."

And with interest rates poised to go higher in 2023 and economic uncertainty sure to grow, consumers could be starting to run dry at the worst time, reports my colleague Alicia Wallace.

EY Parthenon projects that consumer spending will flatline in 2023 after growing 2.7% this year. Persistent inflation, tighter financial conditions and weaker global growth could help tip the United States into a mild recession during the first half of the year, Daco noted.

Goodbye 2022, and good riddance

2022 has been a wild ride, and I'm so grateful that you joined me for it. I hope that Before the Bell has helped you gain some semblance of balance in this often nonsensical good-is-bad and bad-is-good economy.

So as you count down to the New Year, please take a moment to congratulate yourself -- you survived this year. No matter what state your portfolio is in, you deserve to take a breather and reflect on what you've dealt with.

Here's a quick recap:

US inflation hit a 40-year high at 9.1% Unemployment rate hit 3.5% -- that's the lowest since 1969. The 30-year US treasury bond sunk to its lowest return, -35%, in a century. Global central banks hiked interest rates more than 200 timesNatural gas prices grew by 90%Global equity markets lost $33 trillion in capitalization from their peaks.

Phew, someone hand me a glass of champagne.

Here's to a better 2023, I'll see you there.

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