A version of this story first appeared in CNN Business’s Before the Bell newsletter. Not a subscriber? You can register right here. You can listen to an audio version of the newsletter by clicking the same link.
New York CNN —
Welcome to the first day of trading in 2023. Markets are rising, but aren’t you feeling good just yet – if the last year has taught us anything, it’s to expect the unexpected.
On the first day of trading in 2022, the S&P 500 and Dow hit record highs. Later that week, Federal Reserve minutes highlighted growing concerns about rising inflation and indicated officials were considering rate hikes. Since then, trillions of dollars have been wiped from markets around the world as stocks and bonds have been lashed by the Fed’s tightening policy, geopolitical chaos, Covid shutdowns and more.
What’s on the radar this year? Here are the key market-shaping stories from the past year that will stay with us into 2023.
Inflation, Fed and Recession
Inflation was the markets’ top story last year – prices soared around the world, prompting central banks to collectively raise interest rates more than 300 times.
In the United States, inflation hit a four-decade high at 9.1% in June, and the Federal Reserve aggressively hiked interest rates in response.
By the end of the year, Fed officials raised the interest rate that banks charge each other for overnight loans to a range of 4.25% to 4.5%, the highest since 2007.
Those rate hikes should cool the economy and dampen price rises, but now analysts and economists fear it has gotten too cool and a recession is imminent. The question is: how bad will it be?
China
China’s zero-Covid policy has kept large parts of the country closed for extended periods over the past three years – stifling business and frustrating citizens and world trade alike.
Now Beijing is turning away from its strict political protocol and expectations are high for the world’s second largest economy.
However, according to economists, the process of reopening is likely to be unpredictable. They expect the country’s economy to have a bumpy ride this year.
Russia and Ukraine
In late February, Russia invaded Ukraine, beginning a protracted war that would send food and fuel prices skyrocketing around the world. Now an energy crisis is gripping Europe.
International Energy Agency chief Fatih Birol and European Commission President Ursula von der Leyen have warned that Europe could face 27 billion cubic meters of natural gas shortages in 2023. This corresponds to almost 7% of the region’s annual consumption.
Russia, which shipped about 60 billion cubic meters of gas to the European Union over the course of 2022, could halt supplies entirely. It could also cut oil production in response to a western price cap.
SBF and Kryptowinter
It’s been a very bad year for crypto. Bitcoin’s value fell more than 64% in 2022 as the Fed hiked rates and investors embraced its risk-off bear market strategies.
The crypto world was also rocked last year by digital currency exchange FTX’s shocking death spiral and subsequent indictment of its founder Sam Bankman-Fried on eight felonies including fraud and conspiracy.
Elon Musk can add another record to his list of accomplishments: founder, CEO, richest man alive, SNL host and now… the first person to lose $200 billion in wealth, according to a Bloomberg report.
But don’t cry for Musk just yet. The CEO of Tesla, SpaceX and Twitter is now worth $137 billion, according to the Bloomberg Billionaires Index. That puts him second on the list of the world’s richest behind LVMH chairman Bernard Arnault. But at its peak in November 2021, Musk’s net worth was $340 billion.
That drop is largely due to the bulk of Musk’s wealth being tied up in Tesla, whose shares plummeted 65% in 2022, my colleague David Goldman reports.
Demand for Teslas weakened as EV competition from established automakers increased sharply last year. The company missed its growth targets and reduced production in China. Fourth-quarter shipments announced Monday missed Wall Street estimates.
Musk’s $44 billion purchase of Twitter hasn’t helped Tesla’s stock or Musk’s personal fortune. Musk, Tesla’s largest shareholder, has sold $23 billion worth of Tesla stock since his interest in Twitter became known in April.
It’s not all doom and gloom out there. After all, we are not yet in a recession. My cautiously optimistic colleague Matt Egan recently laid out why we could see a soft landing in 2023.
- The setting remains surprisingly resilient. The economy added a robust 263,000 jobs in November and the unemployment rate is just 3.7% – a dramatic drop from almost 15% in spring 2020.
- The cost of living is still far too high, but inflation seems to have peaked. Consumer prices rose 7.1% yoy in November, marking the fifth consecutive month of improvement and a significant slowdown from 9.1% in June. It’s also the lowest annual inflation rate in nearly a year.
- After gas prices rose above $5 a gallon for the first time in June, gas prices have plummeted. The national average for regular gasoline recently fell to $3.10 a gallon, an 18-month low, although it has risen to about $3.22 a gallon in recent days.
- Real wages have been growing faster than consumer prices, a significant shift that could give consumers the boost they need to keep spending next year.
- Fed officials have signaled they may be ready to pause their anti-inflation campaign late in the winter or early in the spring.