Portfolio Research Director, Kevin E. Donovan, CFA, gives updates on 2021 and outlook for 2022.

Kevin E. Donovan, CFA
Kevin E. Donovan, CFAPortfolio Research Director

2021 was an interesting year both for both positive and negative reasons. On the positive side, stocks were way up, the economy grew. Unemployment was way down and wages rose faster than they have in years.

On the negative side, we’re still dealing with the effects of COVID with the rise of the Delta variant and the Omicron variant. And the combination of those increase in wages, product shortages and increase in demand has led to the renewal of inflation to the highest level that it’s been in 40 years. But despite that, like I said, it was a great year for the stock market so let’s look at the numbers.

You see here, the S&P 500 for 2021 was up 27%. Dow was up 19%, international stocks were up 9% and bonds fell 1.5%. Bonds had a tough start to the year last year when bond yields rose dramatically to start out the year and when bond yields rise prices fall. So it was down about 3%, struggled to recover for most of the year and never really did. So to end up down 1.5%.

The S&P 500 had a great year. Corporate earnings were much stronger than expected. You know, obviously the 2020 corporate earnings were low because that was the COVID shutdown year. But even off those elevated expectations for earnings this year, the companies beat those expectations. So it was a very good year for stocks and the S&P 500 did even better than the Dow. You can see in the fourth quarter chart, it was up 10.5% in the fourth quarter. What happened towards the second half of the year was that when the Delta variant came in, people started reassessing the growth of the economy and they went to favor the larger technology stocks. So the same companies that did really well in 2020 for the most part, Apple, Microsoft, Alphabet, Tesla, NVIDIA, all have high weight in the S&P 500 index, which is why it outperformed the Dow by so much towards the end of the year.

So looking forward, what are we looking at? Well, obviously COVID goes on and on. So we’ll be looking at that. The good thing economically about that is that unless we have a new variant that is as bad as the first one, now we have a vaccine in place. Hopefully the economic impact of any future variants will be less than it was in 2020. Also, inflation continues. The latest number released the day that I’m recording this was 7%, which is the highest it’s been since 1982. So we’ll be looking out for that.

In order to combat this, the Fed is going to be increasing interest rates this year and it’s been a few years since it’s done that. That adds a bit of instability or uncertainty into the markets. We may see some negative impacts in bonds again. Last year when I said bonds fell, that was the core bond category. Other categories of bonds actually rose. Things like high yield, municipal bonds rose. So we were looking in other areas for bonds opportunities. The stock market, I wouldn’t expect another year of 27% returns. It’s a pretty historically great year, but we’re cautiously optimistic that we’ll see some positive numbers in stocks. So from behalf of everyone here at CJM Wealth Advisers, I’d like to wish you a happy new year.