Monthly Market Update:
Recap of 2021
It’s 2022. This year is going to be great and I am excited to speak to you as we continue to focus on your financial health.
Some may have felt 2021 was a repeat of 2020, though the stock market did not think so. I’ll discuss the market, what has been brewing through the past year economically and where we could be headed this year in your monthly market update.
To start, let’s talk about stocks. The stock market was a power house this past year with the S&P 500 index taking first place, the Nasdaq coming in second and the Dow in third. What was interesting was the shift in what did well in 2020 versus 2021. Due to less lockdowns, some of the tech stocks that skyrocketed in 2020, such as the web conferencing stock Zoom, did not fare as well. Zoom finished down 54% for the year, while industries that had not done as well in 2020 saw massive returns, such as energy and auto. The seesaw of stocks from 2020 through 2021 was a great example that predicting the market can be nearly impossible and that diversification is key because nobody knows which industry will be where each year. This chart, though slightly old, provides you with a look at what I am talking about. Each industry is colored different and you can see that trying to predict the top industry each year is nearly impossible, though when someone does, they write a book or get a movie made about them, but I have yet to find a second book or movie from anyone who made the perfect prediction twice.
To continue stock market talk, we also have to look at bonds. Often times, bonds are a much less volatile option for portfolios and tend to not go up as much as stocks. This past year was an anomaly, with bonds finishing down for the year and having a bit more ups and downs than usual.
Economically, the year proved to show a strong US economy. Inflation was much higher than normal with the most recent report showing inflation at 6.8% in November. To offset inflation, the Fed started to slow bond purchases and will increase the speed of their taper this year. The Fed has also announced they plan to raise the fed fund rate 3 times in 2022.
As for projecting what is to come this year, it depends on which economist you listen to. Some feel the strong economy will continue while others have a more dooms day opinion. In reality, we have to look at average long term returns and not focus on the short term. We do feel the market will take a breather from the high returns we have recently seen, though the strong economic numbers do not lead us to believe there is a major concern on the horizon. The Fed’s decisions on rate hikes will most likely cause short term volatility, though again, this is a short-term view. The key to financial success is to have a plan, make sure your portfolio is aligned with your needs and to remain calm in chaos. We will make sure the first two are taken care of and will be here for you to help you remain calm if the need arises, just as we were for the market correction in late 2018/early 2019 and the short-term recession, we saw in 2020.
In the end, I look forward to seeing what 2022 brings. As with every year, it will have challenges, though I pray you stay focused on your overall health, including physically, emotionally and financially. Thank you for watching and please reach out if you have any questions.