Today in the Market (12/30/2022)

Good Evening. On Friday, stocks finished down across the board, capping off the worst year for the US stock market since the financial crisis.

When the year ended on Friday, the S&P 500 and Dow were both down roughly 0.2%, while the Nasdaq was down a modest 0.11%.

A LOOK BACK AT 2022

On the final trading day of 2022, US markets plummeted, capping up the worst year for global equities and bonds in more than a decade.

Despite a rush in dip-buying in the last hour of trade, the S&P 500 finished down for a third day in the holiday-shortened week, leaving the benchmark down about 20% in 2022. The Nasdaq 100 finished down, having lost a third of its value this year, as technology firms emerged as those of the most sensitive to increasing interest rates.

Losses last week dashed expectations for a recovery to end 2022, a year in which inflation reasserted itself, wiping out a fifth of the value of world markets, the worst run since the financial crisis. Bonds lost 16% of their value, the most since at least 1990 for one leading measurement, as central banks across the globe rushed to limit growing consumer prices by boosting interest rates.

BREAKING RECORDS BEFORE THE YEAR ENDS

On Friday, the last trading day of the year, a major facility used by the Federal Reserve to help manage short-term interest rates witnessed record inflows. The New York Fed said that its reverse repo facility received $2.554 trillion in cash from money market funds and other qualifying financial entities, breaking the previous high water record of $2.426 trillion set on Sept. 30.

What is the purpose? The reverse repo facility is intended to provide a soft floor for short-term interest rates and the federal funds target rate, the Fed’s primary instrument for meeting its employment and inflation objectives. The Fed also pays deposit-accepting banks to store cash at the central bank, with its interest rate on reserve holdings now standing at 4.40%.

However… Despite the significant use of reverse repos, Fed officials have been repeatedly unconcerned about the big inflows, even as others in financial markets have been concerned that the Fed may suffocate private money market borrowing and lending.

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