Movers and SHAKERS
Image Credit: Towfiqu barbhuiya (Pexels)
Will the Markets Continue to March Higher in 2022?
A relentless bull market, Covid variants, supply-chain issues, and inflation are likely to each have a chapter of their own when the story of the markets strength in 2021 is written. With all the concern during 2021 over whether stocks would stay strong, whether disease outbreaks would crush the economic recovery, and the risks of inflation, the outcome was quite positive. Had an investor built a diversified portfolio on January 1, then ignored it the rest of the year, there is a good chance it would have outperformed the historical averages of the major indexes.
For those who diversified away from equities and decided to play it “safe” in the bond market, many U.S. aggregate bond funds were negative on the year. High yield funds tended to return a paltry return relative to stocks.
Inflation started the year as a talking point and ended as the center of attention. The U.S. economy entered 2021, with consumer prices rising at a low 1.4% year-over-year. This was below the Federal Reserve’s long-run target of 2%. If inflation concerned the Fed at all, it believed it should be a little higher.
Later in the year, supply-chain related shortages had made it from business news to the mainstream news programming. This was a normal dinnertime conversation. The weakest supply chain links were reported to be at ports where containers with imported goods waited to be put on a truck for delivery to t. Both drivers and trucks are still well below the demand level.
Supply and delivery problems was half of the issue that worked its way into producer and consumer prices. Another stimulus bill out of Washington worth $1.9 trillion from the new administration (added to the $900 billion package, and the $2.1 trillion Cares Act passed the prior year) put an excessive amount of money into the economy. The Fed was supporting borrowing by purchasing Treasury securities at nearly a $1 trillion annual rate, along with nearly $500 billion in agency mortgage-backed securities, which continues to keep mortgage rates well below current inflation. The high level of cash that was pumped into the markets to offset lockdowns and slowdowns, along with the inability to deliver goods on time worked its way into prices. Inflation now stands at the end of the year at close to 7%. This is a rate not seen not seen since 1982.
Although not counted directly in the CPI-U basket of goods, larger homes increased in price 20% or more as people working from home now felt they wanted more space. Early in the year, Fed Chairman Powell called the surge in single family home prices a “passing phenomenon.”
Along with housing, inexpensive money seemed to drive asset prices up on much more speculative assets. This included collectible non-fungible tokens, that few had even heard of at the start of 2021, but by year-end the stratosphere-level prices had many investors taking notice and many companies entering the space. Low cost of money inflates the value of assets. Cheap, abundant capital can justify all manner of additions to one’s life, from electric vehicles, to stationary computerized bicycles, to cryptocurrencies of purely speculative value.
A shortage of computer chips lead to a shortage of stand-alone computers and auto and marine engines that rely on these chips. This helped drive up used car and boat prices as much as 10% one month.
In 2022, one can only guess, much of what drove prices up (new money, supply problems) will diminish. It already seems that a stimulus package that only a couple of months ago had the votes to pass, may not be even close to the expected size first envisioned. With this in mind, money management and investment selection become even more important. One cannot just put their money in a diversified fund and expect it to ride the wave.
The Channelchek platform houses current equity research and well thought out articles that are added to daily. It is a great online source to discover actionable ideas and understand what industry experts are thinking. Register at no cost now for Channelchek to help stimulate your investor knowledge in 2022.
Why Small Cap Stocks May Outperform Large Caps in 2022
Market Index Inclusion and Spikes in a Stock’s Demand
Will there be Enthusiasm for Ark Invest’s ESG ETF?
ESG Ratings Could Miss Problematic Supply Chain Issues
Stay up to date. Follow us: