It’s hard to believe that 2021 has ended. In some ways, it has flown by, and in others, it has slowly crept along. For instance, as I was getting out my Christmas decorations this year, it felt like it hadn’t been that long ago since I had packed it all up and stowed it away from the previous year. For all of you Harry Potter or S.H.I.E.L.D. fans, this makes me wish I had an invisibility cloak to drape over my Christmas tree so I could leave it up until next Christmas and no one would notice.
On the other hand, it seems like it has been FOREVER since we were living “normal” pre-COVID lives full of travel, large gatherings, an abundant stock of goods on the grocery store shelves, and no masks. It was a special treat this year to be able to watch the Olympics and have other sporting events back. The protocols are certainly different, but we are learning to adapt and move forward.
I think many people are happy to say good riddance to 2021. However, when it comes to the stock market, my guess is that a lot of us have been pleasantly surprised. The S&P 500 index finished the year up 26.9%, and that’s following an already impressive 16.3% the previous year.
The year of 2021 was marked by a plethora of headlines beginning with the inauguration and the riots at the Capitol on January 6. Other stories for the year included the meme stock phenomenon, new COVID-19 variants, a labor shortage, generous fiscal/monetary stimulus, kinks in the supply chain, healthy consumer demand, and the corresponding price spikes.
The top performing sectors were energy, real estate, and financials. The worst performing sectors were utilities and consumer staples, although both finished the year around 15%, so I would hardly consider that a bad year. Growth stocks outperformed value stocks, 31% to 22%.
Bond and fixed income yields were as low as I can ever remember this past year. The yield curve has flattened, and the Federal Reserve announced the expectation of as many as three rate hikes coming in 2022. Yields are well below current inflation. The Consumer Price Index (CPI) increased at a 6.8% annual rate in November, which is the fastest increase since 1982.
We’ll see what headlines the year of 2022 brings. One that has already been evaded is that of a potential U.S. debt default. Congress has reached a deal that postpones the debt ceiling issue until 2023, increasing it by $2.5 trillion. Now this topic can be avoided during the mid-term elections. This is good news for the stock market, which dislikes unknowns and favors certainty.
The news is full of reports and information that can easily distract us from our goals. No matter what is going on around us, it is important to stick to your long-term plans. Diversification and portfolio rebalancing are tried-and-true investing principles that help navigate the ever changing landscape.
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