Stocks traded modestly lower on Friday to end a strong year for risk assets. It was choppy trading with a surprisingly high volume… all in all, not so surprising given the positive year and sparsely populated institutional trading desks.
N O T E W O R T H Y
Clean slate. I am sure that you don’t need reminding, but because I must remind myself, I will include you for good measure. It is now 2022! The beginning of the year after the year which was supposed to be the big reopening party… which didn’t quite work out as we all expected. Though 2021 can be considered a successful one as returns go, it was certainly not a pleasant one for most investors who were quite literally on the edges of their seats.
A brief rundown of the year goes like this. The S&P500 rose by +26.89%, the Dow Jones Industrial Average advanced by +18.73%, the Nasdaq Composite climbed by +21.39%, and the Russell 2000 Index traded higher by +13.70%. For the S&P, 2021 capped off 3 years of above average gains, with the last two overshadowed by a pandemic. Speaking of that, 2021’s gains were achieved despite 3 COVID surges. We started the year with the backend of an ALPHA surge which eased, only to take us to the DELTA surge of midsummer, which ultimately crashed into the OMICRON surge… still surging. Bond yields are higher but perhaps not as high as many expected with 10-year treasury yields adding just +60 basis points and 2-year Treasuries, more closely tried to Fed policy, gaining +61 basis points. Tight supply and increased demand helped crude oil prices jump by +58%, which is quite exceptional based on its recent trend leading up to the pandemic. Corporate earnings were resilient despite the challenges of 2021 with the S&P500’s annual earnings per share expected to be +70.6% higher than 2021 and +37.1% higher than 2019. Bitcoin capped off the year with a gain of +59.8% while the broader crypto market jumped by +153.29%, thanks to the many lesser-known cryptocurrencies that hit the scene in the past year. Initial Public Offerings kept bankers busy this year, totaling 2,388, some +64% higher than the previous year, according to Ernst & Young. Meme stocks were a thing this past year. Remember GameStop, Blackberry, and AMC Entertainment? Those stocks were up by +687.63%, +41.03%, and +1,183.20% respectively. No, I did not mistype that last number. The company synonymous with those meme stocks, Robinhood went public last year, and it ended the year with a loss of -53.26% (from its IPO price). I can’t do a 2021 recap without mentioning inflation which was a big market driver. The Consumer Price Index, CPI, grew by +6.8% from last November through November of this year (we will get the final read on CPI next week). I am sure that I don’t have to remind you that inflation is significantly higher than in the past 40 years, and indeed higher than the Fed’s +2.0% target.
What will 2022 hold for us? At current, the odds favor 3 interest rate hikes by the Fed which should inject additional volatility into fixed income and equity markets. COVID remains a big wildcard for 2022 because, as we learned in 2021, you can’t underestimate its ability to reemerge with new and different twists. Just how much COVID will affect earnings will certainly be linked to how long the current and potential future surges last. Many economists have already lowered GDP expectations for the coming year in anticipation of the ongoing virus threat. Those same economists expect high inflation to ease in 2022 but remain uncomfortably high. Opinions on the supply chain problems that are driving inflation vary wildly, but the general consensus seems to be pointing to persistent challenges for much of the upcoming year. Today will be the first trading day of a new chapter in a long book. Including today, we have 251 trading days to look forward to in 2022 and bumpy travel seems to be the only thing which can be forecast with any certainty. Fear not however, we will all travel it together.
THE MARKETS
Stocks ended a volatile day of trade on Friday with stocks slightly in the red. The S&P500 fell by -0.26%, the Dow Jones Industrial Average gave up -0.16%, the Nasdaq Composite Index traded lower by -0.16%, the Russell 2000 Index slipped by -0.15%, and the S&P500 ESG Index was down by -0.25%. Bonds gained and 10-year Treasury yields added +1 basis point to 1.51%. Crypto continued its recent slip, giving up -2.27% and Bitcoin lost -2.04%.
NXT UP