December 21, 2022

🎄Well, that's a wrap folks. Welcome to the last Axios Markets of the year. We'll be back in your inbox on Tuesday, Jan. 3. In the meantime, stay safe out there and have a great and relaxing holiday season.

Today's newsletter is 869 words, 3.5 minutes.

1 big thing: The year inflation changed everything

Illustration: Maura Losch/Axios

This was the year rising prices changed everything — from moods to markets, Emily writes.

Why it matters: To understand what happened to the economy, and personal finances, look no further than the Federal Reserve's rate-hike response to the rapidly rising Consumer Price Index.

  • CPI peaked at 9% year over year during the summer — the highest since 1981 — and is now 7.7%.

The big picture: The Fed's aggressive rate hikes — meant to cool the economy, and thus, consumer spending — rippled through the markets and upended the way investing has worked since the financial crisis.

  • Rock-bottom rates since 2008 had driven investors to take bigger and bigger risks — pushing stocks to record highs.
  • Raising rates, on the other hand, was like turning the lights on at the bar at 4am. Investors looked around and thought: This all looks terrible, time to go home.
  • And everyday Americans, most of whom have never experienced high inflation, lived through something that felt eerily destabilizing just as they were emerging from the COVID crisis.

The impact: Stealing the title from one of the year's big movies, rate hikes hit everything everywhere all at once.

  • Real estate: In December 2021, the rate on the 30-year mortgage was at 3% — now it's more than 6%. The pandemic housing boom is a bust, companies in the sector laid off employees, and it's not clear that home prices are anywhere near the bottom.
  • Stocks: The S&P 500 is down more than 20% for the year, as the higher-rate environment changed the investor calculus.
  • Bonds: Typically when stocks are down, investors turn to bonds. Not this year — with rates on newly issued bonds moving higher, investors dumped older bonds. Depending on how you measure it, this sell-off led to perhaps "the worst year ever" or, at least "in decades."
  • Crypto: Some touted it as a hedge against inflation. But as inflation rose and the Fed started tightening, crypto sold off just like any other risk asset, setting off a domino effect of failed crypto companies.

Zoom out: All of this had real-world implications for Americans, who've been rocked by higher energy and food prices along with their shrinking wealth.

  • Consumers are blowing through their pandemic savings accounts, and credit card balances are creeping back up.
  • The national vibe has soured — despite low unemployment rates. Having a job is great, but when inflation eats away at your salary, it's less fun.

The bottom line: Experiencing a period of rising prices firsthand is different from knowing theoretically about inflation, said Ulrike Malmendier, an economist at the University of California, Berkeley.

  • Living through high inflation can change how you see the world, the way you think about your career, homebuying and saving — akin to living through an economic downturn.
  • How it changes us will depend on how long it lasts, said Malmendier, who grew up in Germany, a country permanently changed by wild inflation after World War I, she said — much more extreme than anything we've seen this year.
  • "These economic experiences scar us for years and decades to come," Malmendier said.

2. Catch up quick

✨ Scoop: Biden's inflation-immigration pitch. (Axios)

💸 Senators propose increasing 1099-K tax threshold to $10,000 after pushback. (CNBC)

🚨 House committee to release years of Trump's tax returns. (Axios)

3. Fall from grace

Data: Yahoo Finance; Chart: Axios Visuals

Cue the Maxine Nightingale. Big Tech is right back where it started from, Emily writes.

  • In the low-rate world, and especially during the pandemic years, tech stocks looked invincible. Not anymore.

😱 Amazon, Netflix and Meta have lost all those pandemic-era gains — and then some.

4. ⚡️Charted: Energy in an ugly year

Note: Equity index figures reflect total return, commodities figures reflect market prices. Data: Bond market data via Bloomberg indexes; all other data via FactSet; Chart: Axios Visuals

It's (nearly) official: In 2022, investors took a bath on tech shares, while energy stocks stood out — for obvious reasons, Matt writes.

The big picture: The surge in the value of oil and gas drillers, refiners and fuel marketers is a result of the surge in crude oil prices, refining margins and costs passed along to drivers at the pump.

  • In other words, it's yet another reflection of the impact inflation had on financial markets and the world this year.

On the flip side: As we've written so much this year, the Fed's effort to corral rising prices — with the fastest series of interest rate hikes in 40 years — clobbered the kind of highly speculative tech stocks that did so well in 2021.

5. 🎢 S&P's rollercoaster year

Change in the S&P 500
Data: FactSet; Chart: Madison Dong/Axios Visuals

It was a wild year for the S&P 500, Matt writes.

  • Daily swings of more than 2% — either up, or down — were a prominent feature of the markets this year, after relatively smooth sailing in 2021.

The big picture: The stock market volatility reflects the growing uncertainty that investors experienced as meaningful inflation returned following a 40-year hiatus.

  • That, and fears over the impact of the Fed's market-clobbering rate hikes.

6. Duopoly disrupted

Share of U.S. digital ad spend, by company type
Data: Insider Intelligence; Note: E-commerce includes Amazon, eBay, Walmart and Etsy; Streaming includes TikTok, Hulu, Roku, Pluto, Tubi, Spotify, Pandora and iHeartMedia; Tech includes Microsoft, Yelp and Verizon/Yahoo; Social media includes Snap, Twitter, Pinterest and Reddit; Chart: Axios Visuals

Google and Meta, known together in the ad industry as the "duopoly," are expected to bring in less than half of all U.S. digital advertising this year — for the first time since 2014, Axios' Sara Fischer writes.

  • Why it matters: The duo's ad dominance has for years made both companies the target of antitrust investigations and lawsuits. While they still tower over digital rivals, their momentum is starting to slow as competition moves in.

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Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece.