2021 Year in Review.
It’s been said “the more things change, the more they stay the same”. 2021 is in the rear-view mirror and it’s 2022, but many of the things that seemed a bit out of alignment last year still are.
While I was writing this last year on January 6th, thousands of people were storming the Capital. A year later, some are still questioning the results of a very contentious election, with many on both sides wondering whether the former President will run again - or at least try to disrupt the 2024 election.
We’ve had a major piece of bi-partisan infrastructure legislation pass, but a massive spending package that includes substantial tax hikes and a much larger social safety net may or may not be in our future. We still have a pandemic raging around the world, and while most people in developed countries have been vaccinated, it appears Omicron didn’t get the memo. Our leaders, and their approach to the virus, seem to be in disarray. Countries are still shutting down while others like U.S. (and especially Florida), are making every attempt to keep things open while trying to hold the virus at bay.
We did have something new last year that looks like it will be with us a bit longer than first expected - inflation. Just last week, the January Consumer Price Index (CPI) revealed a 7% increase in prices for 2021 which is the highest level since 1982. Most of this is due to supply disruptions and the amount of money the Fed has pumped into this economy. To put it simply, there is too much money chasing too few goods. Sprinkle in a little pent-up demand from the pandemic, and voila, prices go up. The only question is - will the Fed run the economy into the ditch trying to tamp down inflation?
They’ve announced they will begin tapering (or slowing) the purchase of fixed income securities (bonds) and then allow the ones they own to roll off their balance sheet as they mature (in case you haven’t heard, their balance sheet is $8 trillion). They will also mostly likely begin to raise interest rates by the end of the year. We’ll see.
The good news is, we had a decent investing year, but so far in January, it doesn’t look like a repeat. The market rally of 2021, as measured by the S&P 500, was not “broad based”. In other words, the market gains were driven primarily by 5 or 6 very large tech companies. Small company stocks and International markets underperformed the US Large Cap universe by double digits.
So far in 2022, it looks like a rotation is occurring between the high-flying tech names of 2021, into more value-oriented parts of the market, which tend to perform better in rising interest rate environments. I believe we’re in the middle innings of this business cycle and companies will likely experience another year of increased earnings. This should translate into higher stock prices. On the other hand, “as January goes, so go the year”, so we’ll see. Either way, if we do experience increased growth in profits, we may still have a good year. Stay safe.
Michael P Henderson, CFP® CKA®
Founder – Crossover Point Advisors
CERTIFIED FINANCIAL PLANNER™ practitioner
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