11 charts that explain the year in business, technology and the economy

It has been a confusing year for the economy and markets. In early 2023, economists were largely predicting a global recession, and Wall Street was bearish on stocks, with many analysts expecting the S&P 500 to end the year slightly higher than where it started. Fast forward 12 months: no recession (yet) and the S&P 500 is tantalizingly close to an all-time high.

Here are 11 graphs that help explain how we got here.

Inflation and its ripple effects

Central bankers around the world continued an aggressive campaign of interest rate increases raise the policy rate in 2023 in an attempt to curb the highest inflation in generations.

Inflation has cooled significantly in many places, although still above the Federal Reserve’s target (about 2 percent), and rate hikes have stopped. The question is how long central bankers will have to keep interest rates high to ensure inflation remains under control without halting economic growth.

These losses only become real when the banks have to sell the assets. Before the implosion, the SVB was forced to do this, issuing its bonds at a steep discount to pay back savers. These losses caused alarm, prompting more customers to demand their money back – a classic bank run – and increasing concerns about unrealized losses at other regional banks.

Higher interest rates also pushed up borrowing costs for consumers and businesses, which resonated across the economy, especially in commercial real estate.

Rosy economic indicators, gloomy feelings about the economy

A raft of macroeconomic data in the United States suggested cause for celebration: unemployment remained low and GDP grew rapidly this year. In 2020, wage growth far exceeded inflation largely due to pandemic disruptions. This trend reversed this year, with wage growth exceeding inflation for the first time since the post-coronavirus economic recovery began in the second half of 2020.

What explains the disconnect? Persistently high prices? Fear of a recession? The “vibecession”? Whatever the explanation, voters’ feelings about the economy — and President Biden’s handling of it — could potentially be decisive in the 2024 election.

A summer of strikes

The “Barbenheimer” weekend followed shortly after a strike by tens of thousands of actors. They joined screenwriters on the picket line in July to bring Hollywood to a standstill.

The strikes were part of a wave of labor activity in the United States this year, including targeted strikes by the United Automobile Workers union. Despite the recent upturn, overall union activity has declined since the 1970s and 1980s.

Geopolitics has rewired economic relations

Two wars have underlined the fragility of the global economic recovery and rewired the world’s trade relations.

An example: the geopolitics of oil. Prices rose above $120 a barrel after Russia’s invasion of Ukraine in 2022, then fell steadily after rising US oil production and signs of a global economic slowdown. The war between Israel and Hamas raised new fears that oil prices would rise and reignite inflation. Despite the problems of shipping in the Red Sea and the Suez Canal, these concerns have yet to materialize.

In the war between Russia and Ukraine, India and China have emerged as the main beneficiaries. India, benefiting from its neutrality, went from buying barely any Russian oil to buying about half of what the country exports by sea. Trade between China and Russia has also risen sharply, to more than $200 billion in the first eleven months of this year.

The US and China remained deeply intertwined

Tensions between the United States and China appear to have stabilized following President Biden’s meeting with President Xi Jinping of China on the sidelines of the Asia-Pacific Economic Cooperation peak in November.

Economic ties remain strong, and new research shows how difficult it is to dissolve them. Tariffs and other trade restrictions imposed by the Trump administration have caused China’s share of exports to the United States to fall in recent years, while countries such as Mexico and Vietnam have gained ground.

But those countries import intermediate goods from China, meaning U.S. supply chains remain dependent on Chinese manufacturing. In fact, China is now the dominant supplier of industrial inputs calculations in a recent article.

Another reason why the United States cannot easily “decouple” from China: semiconductors. China is a key market for these advanced computer chips, which can be used to power artificial intelligence systems. This fall, the Biden administration tightened its export controls on semiconductors, making it harder for U.S. companies to sell them to China. But major chip makers like Nvidia are already working on custom chips to sell to Chinese markets, hoping to get around the restrictions.

Investments in AI have increased dramatically

This year has seen an explosion of investment in generative AI startups, including Microsoft’s $10 billion backing of OpenAI announced in January. Microsoft’s relationship with OpenAI has since come under scrutiny, particularly its role in reinstating Sam Altman as CEO of OpenAI after a boardroom coup that caused a chaotic five days at the startup. On December 27, The New York Times became the first major U.S. media organization to sue OpenAI and Microsoft over AI-related copyright issues, saying in the lawsuit that the companies should be held responsible for “unlawfully copying and using The Times’ unique publications ”. valuable works.”

Nevertheless, investments in this technology area are increasing explosively.

Microsoft and Nvidia, the chipmaker, are two of the “Magnificent Seven” technology stocks that contributed to this year’s stock market rally.

As the year drew to a close, the S&P 500 continued the bull market rally that surprised many on Wall Street.

How long will it stay that way? That is a question for the next twelve months.