2021: A Year to Remember

1/5/2022 - By Chris Stennett, CFP and Mark Hemby, CFA

We hope you and your families enjoyed the holiday season and are excited for this new year. Managing your investments is a responsibility we don’t take lightly, and we want to continue to help you make sound financial decisions for many years to come. Part of our responsibility is to keep you informed as to what’s going on in the financial markets. 2021 was filled with some noteworthy moments, yet these moments did very little to negatively impact the US stock markets. The S&P 500 finished up 26.9% and the Nasdaq 100 was up 21.4%, while Dow Jones Industrial finished up 18.7%, MSCI World X-US (International) was up 12.62% and the Dow US Select Real Estate Trust (REIT) finished up a stellar 46%. Diversified investors who stayed the course and didn’t let headlines drive their decision-making, benefited the most this year. Let’s look back at some of the notable headline moments of 2021.

The Pandemic Continues

Vaccines were made available to different sectors of the population as the year began. Then halfway through the year, we were introduced to the Delta variant. Directly on the heels of Delta, we were hit with another variant, Omicron. Yet the markets remained resilient, with almost no volatility throughout the year.

Of course, these variants also brought about some serious supply chain issues. We saw a backlog of shipping containers held away from ports as local crews scrambled to unload and reload vessels. Prices on goods fluctuated wildly. Timber prices soared then crashed. Oil crashed then soared. Copper and steel had double-digit growth, while gold and silver saw declines for the year. We’ve started to see some of these supply chain issues get resolved, but with COVID-19 still present, there’s potential for future setbacks.

Inflation

Another big headline for the year was the rising costs we’ve seen across the spectrum of goods we buy. In 2021, the U.S. economy experienced the worst inflation in nearly 40 years. Stimulus from the Federal Government along with monetary support in the form of bond-buying by the Federal Reserve helped contribute to over 7% inflation. The pandemic also exasperated supply chain problems resulting in shortages in many areas of the economy.

Inflation was not equal in all sectors. Home prices are still at all-time highs across the country. This has been fueled by the pandemic and employer flexibility allowing its employees to work from home. As homes began to hit the market, most received multiple offers, many over the asking price. Will home prices return to pre-pandemic levels? It depends on if you see this as a ‘Demand Bubble’ or a ‘Supply Bust’.

Houses weren’t the only things affected. For most people, this wasn’t a good year to buy a car. New cars were limited in availability due to stress placed on the global supply chain to provide the parts needed to make the vehicles operable. We all recall seeing a parking lot full of pick-up trucks awaiting semiconductors from overseas before they could be sent to dealerships. Even when the vehicles did arrive, buyers had very little room to negotiate and were often forced to compromise on the color or trim package. The used car market wasn’t any better as a series of unforeseen events drove used car prices through the roof. During the early days of the pandemic, many rental car businesses sold large portions of their fleets to remain in business as American travel lessened. Once the demand for rental cars started to rise, the rental companies had to go buy their cars back, creating a spike in demand.

One positive that has come from inflation is that many people seeking higher pay are finding it. The cost of labor has dramatically increased with labor shortages across all industries and more flexibility has also been given as a result of COVID-19-related work-from-anywhere policies.

Fixed Income Markets

Fixed income investments struggled over the course of the year as optimism about the end of the pandemic increased. However, the mid-year scare with Delta and Omicron limited the damage. The benchmark 10-year Treasury started 2021 with a yield of 0.95% which increased to 1.74% in late spring. Concerns over the new variants pushed yields back to as low as 1.16% but finished the year at 1.50%. The Fed is expected to increase the benchmark Fed Funds rate three times in 2022.

New Opportunities Abound

2021 popularized two new terms to investors: SPACs and Bitcoin. SPACs, or Special Purpose Acquisition Companies, helped introduce almost 400 new companies into the public sector, potentially fueling future job growth and innovation. It was a great year if you were trying to take your business public, as there were so many avenues available to raise funding. While there’s no way to know the future of these new companies, there is optimism in the fact that they were able to come to market at the height of a pandemic.

Bitcoin, the original cryptocurrency, also became widely popular during the year and began to establish itself as a mainstream investment option for investors looking for something new. An entirely new type of investment is available now, and while still in its infancy, it offers some great opportunities to diversify wealth and fuel new technologies.

Ultimately, 2021 was a fantastic year for stock investors who stayed the course. While daily headlines brought about tremendous uncertainty, the stock markets never flinched. US markets have finished positive 12 out of the last 13 years, with the lone exception being 2018’s negative 4.5% return. While we have no idea what 2022’s markets will do, we still are tremendously optimistic about their long-term potential to build wealth and lessen the impact of inflation.

Questions?

Reach out to our Financial Advisors team to answer any of your investment, wealth management or financial advising questions!

About the Author | Chris Stennett, CFP and Mark Hemby, CFA

Chris is a senior financial advisor and Certified Financial Planner® practitioner for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. He serves individuals and organizations as a comprehensive financial planner and coordinator of investment activities. His areas of expertise include investment management, income planning, tax and estate planning and risk management. Chris has over a decade of experience as a wealth manager working with teachers, federal and state employees, retired Armed Forces and private-sector employees.

Mark is a financial advisor for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. He holds a Chartered Financial Analyst (CFA®) designation and as part of our investment advisory group, he works with clients to develop and implement investment strategies to achieve financial freedom while also ensuring their goals and objectives are aligned. Mark has over 15 years of experience in investment banking working with individuals and organizations to manage their portfolios and coordinate investment activities. In addition to his experience with fixed income trading and sales, Mark owned and operated his own business in Alabama.