Investors have very little to be thankful for in 2022
By Paul R. La Monica, CNN Business
Americans are getting ready to celebrate Thanksgiving. But investors in the United States (and the rest of the world for that matter) don’t have much to be grateful for in what is turning out to be a rotten 2022.
The S&P 500 has plunged 17% this year, and the tech-heavy Nasdaq is in a bear market, having plummeted nearly 30%. Cryptos have crashed. AMC, Bed Bath & Beyond and other meme stocks have imploded. The housing market is starting to show signs of strain. There’s not much to cheer in this market and economy.
“2022 has provided a timely reminder that volatility is a feature of financial markets, not a bug,” said Scott Clemons, chief investment strategist at BBH. “We enjoyed upside volatility from 2020 through 2021, and 2022 reminded us that what goes up will occasionally go down.”
But Thanksgiving should be a happy time, so how about we look at some of the bright spots in the market this year?
There’s a saying on Wall Street that there’s always a bull market somewhere. That’s true for this year, too. Oil stocks have been huge winners this year, thanks to the spike in crude prices…which boosted sales and profits.
The S&P Energy Select SPDR ETF is up nearly 65%. Warren Buffett/Berkshire Hathaway-backed Occidental Petroleum is leading the S&P 500, having more than doubled this year. Chevron is the top stock in the Dow, surging about 55%.
What’s more, many big oil companies have rewarded investors further with increased dividends, as fund management firm Janus Henderson noted in a recent report: “Soaring energy prices fueled a significant increase in dividends…as oil companies distributed record profits to shareholders,” the company wrote.
Janus Henderson said that total energy stock dividend payments rose 7% in the third quarter to nearly $416 billion…and 90% of oil companies either raised their dividends or held them steady, with some energy firms choosing to pay one-time special dividends.
This may cause further concerns among politicians who want to tax oil company windfall profits. For now, at least, energy investors are reaping the rewards.
Dividend-paying stocks haven’t been the only way for investors to generate more cash this year, of course. The bond market has been a lucrative source of income as rising interest rates in the US and around the globe pushed yields higher.
Buy bonds and short stocks?
“Investors can get caught up in the excitement of the stock market, but now’s a time to give the bond market a look,” said Brian Overby, senior markets strategist at Ally, in a report. He noted that investment-grade corporate fixed income yields are above 5.5%, not far from their highest levels since 2009.
Overby added that short-term US Treasuries are a good value, with yields exceeding 4%. And there are also opportunities for investors looking for a little more risk…and potential reward.
“Volatile parts of the bond market, such as U.S. speculative-grade fixed income and emerging market debt, feature yields in the high single digits,” Overby wrote.
Finally, investors who’ve bet against the stock market also can give thanks for this year’s volatility. … have much to be thankful for?
Short sellers, who borrow stocks and sell them with the hopes of buying the shares back at a lower price and profiting from the difference when they return them to the lender, have much to be thankful for.
Shorting is an inherently risky strategy, though not one for the faint of heart. But there are ETFs that make it easier for average investors to bet against the market, and they have been huge winners this year. A ProShares ETF that bets against the S&P 500 is up nearly 15% in 2022 while the ETF shorting the Nasdaq 100 has soared 28%.
Bearish investors who went a few steps further and shorted crypto-related stocks have done even better in 2022, especially following the spectacular collapse of former crypto king FTX.
“Shorting crypto stocks has been a profitable trade in 2022, with short sellers up nearly 90% this year,” said Ihor Dusaniwsky, managing director of predictive analytics with S3 Partners, a research firm.
Dusaniwsky noted that crypto short sellers have gained nearly 10% in November alone, with much of the short selling focused on Square-owner Block and Coinbase. Shares of Block, run by former Twitter CEO Jack Dorsey, have plunged nearly 60% this year while Coinbase has plummeted more than 80%.
Tech results on deck
It’s not just crypto having a rough year. The entire tech sector is underperforming, and investors will be looking for any signs that 2023 will be better when several tech firms report earnings during this holiday-shortened week. (Wall Street is closed Thursday for Thanksgiving and there’s an abbreviated day of trading on Black Friday.)
Video conferencing leader Zoom reports results Monday. Analysts are forecasting a drop in earnings and a paltry 5% increase in sales from a year ago.
The company is no longer enjoying the boom it experienced at the start of the pandemic in 2020 now that more workers have returned to offices. The stock has plunged more than 55% this year.
PC giants Dell and HP also report results this week. Desktops and notebooks may no longer be as popular with average consumers as they were before the age of smartphones and tablets, but both companies still generate a big chunk of revenue to so-called enterprise, or corporate, customers.
So it will be interesting to see whether Dell and HP are benefiting from the same back-to-work trend that’s hurting Zoom. Their current quarters aren’t expected to be strong, but their outlooks may be key to what’s next for the market.
Analysts are predicting a decline in revenue and profits from a year ago for both companies. Dell and HP shares are each down more than 20% this year.
Up next
Monday: China sets loan prime rate; earnings from Smucker, Dell, Agilent and Zoom
Tuesday: Earnings from Baidu, Best Buy, Medtronic, Dollar Tree, Analog Devices, Dick’s Sporting Goods, Abercrombie & Fitch, HP and Nordstrom
Wednesday: Eurozone and UK flash PMI; US weekly jobless claims; US durable goods, US new home sales; US U. of Michigan consumer sentiment; US Fed minutes; earnings from Deere
Thursday: US markets closed for Thanksgiving
Friday: US stock market closes at 1pm ET for Black Friday; Japan CPI
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