Wall St ends year with biggest annual drop since 2008

STORY: U.S. stocks fell on the last trading day of 2022, closing out the biggest yearly decline since the financial crisis of 2008.

The Dow Jones Industrial Average fell two-tenths of a percent. S&P 500 dropped by a quarter-point, and the Nasdaq dipped just over a tenth of a percent.

Jay Hatfield, the chief investment officer for ICAP ETF, said a selloff in bonds was undercutting stocks as well.

"The issue with the market, which has been true for two weeks is, since the ECB came out with their very hawkish policy, and the BOJ raised their target for the 10-year, from 25 basis [points] to 50, the global bond market's been selling off. And a lot of investors think, 'Oh, that's bad for tech stocks,' but it's unambiguously bad for really all assets."

Ten of the 11 S&P sector indexes dropped on Friday, led by real estate and utilities.

Markets this year marked the end of an era of loose monetary policy amid aggressive interest rate hikes to curb inflation, fears of recession, a seemingly unending conflict in Ukraine and a staggering resurgence of COVID-19 in China.

Not all sectors were hurt as badly: Energy recorded stellar annual gains of 58% due to a surge in oil prices.

The focus now turns to the 2023 corporate earnings outlook, with growing concern about the likelihood of a recession.

Hatfield, though, says he's less worried than some, believing that housing prices are currently lagging, and that the broader Consumer Price Index will soon reflect this.

"CPI will cool off faster than people think, which will allow the Fed to pause, and we'll get through this cycle with either no recession or a very technical recession. So we're way more bullish than most strategists about the market next year."

Still, signs of U.S. economic resilience have fueled worries that rates could stay higher for longer.