According to the calendar, 2022 is over, but its most important business stories remain headline news. Even more, they very likely will continue to affect both the economy and the markets in 2023. Following is a review of some of them.
The lead story is Covid. Although the number of deaths and infections have slowed they continue to increase. More than 100 million Americans have been infected and more than 1.1 million of them have succumbed to the disease. At year-end, health officials warned there could be an upsurge when winter sets in.
Supply chain disruptions also remained a problem, contributing to higher inflation, consumer frustration, and shortages of numerous products.
Semiconductors were high on the Top 10 list of products in short supply, creating many problems because they are used directly or at least indirectly in countless items. Shortages extended to many other areas, including baby formula, foods ranging from popcorn to tomatoes, and even to staples like chicken. Businesses also had to cope with a shortage of workers, as many demanded much higher wages to return to work or were simply not interested in working for any wage.
Among other business stories were several huge acquisitions such as AMD’s $49 billion purchase of Xilinx, the largest acquisition ever in the semiconductor industry, and Broadcom’s $61 billion offer for VMware.
But by far the most important acquisition was Elon Musk’s purchase of Twitter, which shook up both social media and politics, and continues to generate controversy.
For many people, business news means market news and there was plenty of that. The Dow made a new high early in the year, fell sharply, rallied, and trended lower again. Late in December, there were welcome rallies, but they were offset by still more selling.
One of the companies leading the market’s decline also led its advance: Tesla. Its shares had a split-adjusted range of 123-403; analysts say the decline was due in part to Elon Musk’s heavy selling to raise funds related to his purchase of Twitter. Tesla shares lost many hundreds of billions of their market value and continued to drop fast.
But some investments did even worse – particularly cryptos; in fact, the entire industry was crushed. Bitcoin, the leading cryptocurrency, seemed to be holding at the $16,600 range late in December, but that was only a fraction of the all-time high of $69,000 made in November 2021.
Most other cryptos did much worse, declining by an even greater percentage or becoming worthless. The combined carnage was well in excess of $1.1 trillion. And given the collapse of the cryptocurrency exchange FTX and related issues, it’s possible buyers will just stay away going forward
Early in the year, oil rose to approximately $115/barrel, the highest price since 2008, in part because of the Russia-Ukraine war. Of greater interest to most people was the soaring price of gasoline. In mid-June, a gallon averaged at $4.99/gallon, well above the national average price over the last five years. But that was cheap compared to the price in California, where it sold for $6.43. Both oil and gasoline have declined sharply since then, a combination of weakening economies and sales from the US strategic petroleum reserve that added to supply.
Interest rates skyrocketed, causing havoc in the housing industry for both buyers and sellers, and everyone else whose mortgages and/or other loans have adjustable rates.
Gold also dropped, but not as sharply as other assets. Late in December, the yellow metal traded at just over $1800/ounce, well below the $2039/ounce high for the year but only slightly lower than its price a year ago. Considering that 2022 was a tough one for so many investments, gold actually held its value respectably well. The all-time high for gold was $2075 in 2020.
There were some bright spots on Wall Street, as a handful of stocks fought the trend and registered gains. These include some oil and gas issues that benefited from higher energy prices and tanker stocks that transport petroleum products.
A Year To Forget
Many people sincerely hope that 2023 will be better than last year. At least 20 million people are behind on their utility bills and face a shutoff of their power; this number will likely increase given the recent polar vortex that has affected much of the US. About 8% of mortgages on homes were underwater, 3% of them seriously underwater. And credit card debt hit an all-time high of $930 billion, as many financially pressured people were forced to use them to purchase essentials.
So what might happen in 2023? This question is difficult to answer because all too often the obvious fizzles out while the unexpected becomes headline news. Still, even though making predictions is risky, it’s also fun. Here are two that hopefully will not materialize.
*Oil could become the buzzword of 2023. Although stable now, this could change suddenly. Saudi Aramco CEO Amin Nasser said an unexpected increase in demand or an interruption in supply “could drive the price very quickly,” hurting an already weak global economy and already high inflation. In fact, he said, “The world should be worried.”
A related point is that global oil inventories are at the lowest level since 2004. And the US strategic oil reserve is about half what it was at the start of 2021. Bottom line: Although oil dates back to the 1800s, its best days may still lie ahead.
*The effort to replace the dollar as the world’s reserve currency is gaining momentum as a growing number of countries already have or are considering jumping aboard. If they are successful, that could spell trouble for the US and Americans.
Leaders in this effort are the BRICS nations (Brazil, Russia, India, China, and South Africa), which combined have more than a quarter of the world’s population and a significant percentage of the global economy. But additional countries have expressed an interest in joining them. Among them is Saudi Arabia, for decades a close US ally but now publicly moving closer to China and Russia.
Their alliance could lead to a new currency, one backed at least in part by gold, and intended to replace the dollar as the world’s reserve currency. These countries either have political differences with the US and/or the West, or see more economic opportunity by allying themselves with Russian and China.
If this new currency becomes widely used Americans potentially could be facing much higher interest rates and sharply higher oil prices. Other countries said to be considering joining BRICS include Argentina, Turkey, and Egypt. If they do, Russia and China will have scored a major victory at the expense of the US and the dollar.
One of the reasons news is so fascinating is because the unexpected happens so often. In consideration of this, there is reason to hope that 2023 will usher in a year of safety, prosperity, and calm. Let’s hope so.
Sources: barrons.com; crn.com; finder.com; goldseek.com; money.usnews.com; thereuters.com; statista.com; yahoofinance.com; zerohedge.com