The Labor Market is Hard — 2021, a year that shook the labor market like no other. Okay, maybe 1942 would have something to say about that with the U.S. entering WWII, but work with me here. Following the onset of the COVID-19 pandemic in early 2020 (2 years ago, if anyone’s counting) and the subsequent dumping of cash across the entire economy, U.S. workers have faced a confusing mixture of woos and worries when it comes to their occupation.

We won’t get the latest data until Friday, but the December jobs report is projected to show an increase of 405,000 workers. Of course, these are economists, who spent more time last year revising estimates than actually forecasting them, so who knows. 

A strong labor market would provide a ballast to the Federal Reserve’s plan to raise rates three times in 2022, likely beginning in just a few months as the asset tapering process ends in March. It’s hard to raise rates when no one’s hiring already, but when businesses are on their hands and knees begging for workers, it becomes a tad easier. There are a myriad of reasons workers have refrained from heading back to the job but of course, some of those, like COVID worries, apparently, are winding down more than others.

Further, the U.S. economy is already sitting at near-historical low unemployment rates. As the labor market participation rate ticks up, the unemployment rate relies on available jobs to match the skills and desires of citizens that are currently counted as out of the workforce. The only way to find out is to stick around and see what goes down in the New Year, kicking off this Friday with the latest job numbers.

We Talkin’ Bout Profits? — Yes, we are talking about profits. Unlike what AI thinks about practice, profits as it turns out, are quite important…and quite large. Last year, companies in the S&P 500 grew profits 45%, the highest growth since at least 2008. Even crazier than that ridiculous growth is a factor derived partially from that figure, the overall S&P 500 p/e ratio. As we’ve spoken about before, p/e ratios can be thought of as a quick measure of company valuation. A good way to frame this ratio is the amount of money you’re paying per $1 of the company’s earnings, e.g., a p/e of 25x means you’re paying $25 for $1 of earnings.

The S&P 500’s p/e ratio shrank in 2021, despite surging by over 15% for the third straight year. This means that, on a relative historical basis, stocks are cheaper now than they were at this time last year. These lower valuations have led some analysts to believe this gives even more reasons to be bullish in 2022, especially in more value-oriented names.

But, analysts are also keen to point out that the party can’t last forever. Profits grew sizably largely due to year-specific factors like pent up demand and the wealthiest consumer base of all time (thanks, stimulus checks). As inflation continues and rate hikes loom, don’t expect to read the same headline at this time in 2023.

M&A = More & A lot more — We’re not done reporting on financial records that were broken in 2021. M&A, aka mergers and acquisitions, saw an all-time high last year, which in hindsight, makes a lot of sense. 

Deal-making was absolutely on fire, reaching a global total surpassing $5tn for the first time ever, hitting a total notional value of $5.8tn. The previous record, set in 2007 (oof), sits at $4.55tn, so a nearly 19% beat of the all-time record is truly remarkable. 

Low rates, soaring stocks, and accommodating monetary policy were the main drivers of this growth. All of this activity led to Wall Street bankers, as usual, being the big winners. Barron’s pegs the total earnings for these banks on this M&A activity at $157.3bn, a blowout record as well. And thank god, I for one was extremely worried that the massive pay raises banks shelled out to bankers wasn’t going to be enough.