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This year has been a turbulent year for the economy and markets. At the beginning of 2023, economists are largely predicting a global recession, Wall Street is bearish on stocks, and many analysts expect the S&P 500 to end the year slightly higher than it started the year. I expected it. Fast forward 12 months, there is no recession (yet) and the S&P 500 is tantalizingly close to all-time highs.
Here are 11 charts that explain how we got here.
Inflation and its ripple effects
central banker In the world Continued aggressive interest rate hike campaign In 2023, it will raise interest rates to curb the highest inflation in generations.
Inflation has cooled significantly in many regions, but remains above the Federal Reserve’s target of about 2%, and interest rate hikes have been paused. The question is how long central bankers need to keep interest rates high to ensure inflation is contained without halting economic growth.
These losses are only realized if the bank has to sell its assets. Before the implosion, SVB was forced to do just that – unload bonds at a deep discount to repay depositors. Those losses sparked alarm, prompting more customers to demand refunds (a typical bank run) and raising concerns about unrealized losses at other local banks.
Rising interest rates also increased borrowing costs for consumers and businesses, impacting the economy as a whole, especially commercial real estate.
Rosy economic indicators, gloomy sentiment about the economy
A slew of US macroeconomic data suggested cause for celebration as unemployment remained low and GDP grew rapidly this year. Wage growth far outpaced inflation in 2020, largely due to distortions caused by the pandemic. That trend returned this year, with wage growth outpacing inflation for the first time since the post-coronavirus economic recovery began in late 2020.
What is the cause of the disconnection? Remaining high prices? Concerns about recession? “Vibe sessions”? Whatever the explanation, voters’ feelings about the economy, and President Biden’s handling of it, could have a decisive impact on the 2024 election.
summer of strikes
A strike by tens of thousands of actors was immediately followed by the “Babenheimer” weekend. They joined screenwriters on picket lines to shut down Hollywood in July.
The strikes were part of a growing wave of labor activity in the United States this year, including targeted strikes by the United Auto Workers union. Despite recent increases, overall union activity has been declining since his 1970s and his 80s.
Geopolitics has rewired economic relationships
The two wars highlighted the fragility of the global economic recovery and reshaped global trade relations.
A good example is the geopolitics of oil. Prices soared above $120 a barrel after Russia’s invasion of Ukraine in 2022, but have since fallen steadily amid a surge in U.S. oil production and signs of a global economic slowdown. The war between Israel and Hamas has raised new concerns that oil prices will rise and inflation will reignite. These concerns have not yet materialized, despite the rumbling of ships in the Red Sea and Suez Canal.
India and China have emerged as major beneficiaries of the Russia-Ukraine war. Thanks to its neutrality, India has gone from buying almost no Russian crude oil to buying about half of its seaborne exports. Trade between China and Russia has also soared, exceeding $200 billion in the first 11 months of this year.
The United States and China still had deep ties
US-China tensions appear to have stabilized after President Biden met with Chinese President Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation meeting. Summit in November.
Economic ties remain strong, and new research shows how difficult it is to untie them. China’s share of exports to the United States has declined in recent years due to tariffs and other trade restrictions imposed by the Trump administration, while countries such as Mexico and Vietnam have emerged.
However, these countries import intermediate goods from China, meaning the U.S. supply chain remains dependent on Chinese production. In fact, one recent paper calculates that China is now the leading supplier of industrial inputs.
Another reason why the United States cannot easily “decouple” from China is as follows. semiconductor. China is a major market for these advanced computer chips that can be used to power artificial intelligence systems. This fall, the Biden administration tightened semiconductor export regulations, making it difficult for U.S. companies to sell semiconductors to China. But major chipmakers like Nvidia are already working on improved chips to sell to the Chinese market, hoping to circumvent the regulations.
AI investment is rapidly increasing
This year has seen an explosion in investment in generative AI startups, including Microsoft’s $10 billion in support for OpenAI announced in January. Microsoft’s relationship with OpenAI has since come under scrutiny, particularly over Microsoft’s role in Sam Altman’s return as CEO of OpenAI after a board coup that caused a chaotic first five days at launch. . On December 27th, The New York Times became the first major American media organization to sue OpenAI and Microsoft over AI-related copyright issues, with the lawsuit claiming that the companies are “illicitly copying and copying Times’ own content.” He said that the company should be held responsible for its use. This is a valuable work. ”
Despite this, investment in this technology sector is rapidly increasing.
Microsoft and semiconductor maker Nvidia are two of the “Magnificent Seven” tech stocks that have contributed to this year’s stock market rally.
As the year began, the S&P 500 continued its bull run, surprising many on Wall Street.
How long will it last? That’s a question for the next 12 months.
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