Market Wrap 2021: Remember this year fondly, 2022 could be more challenging

Even with just two trading days to go, it's clear that 2021 has been a good year for equities. A very good year.

The pushed Wednesday to new closing and 52-week highs and looked poised to end 2021 at nearly 20%.

This week set new records and flirted with returns of 28% for the year, its best performance since 2019. Equally important, the broad index of large-cap stocks seems to outperform tech-heavy stocks this year. for the first time in five years.

The stellar finish raises questions for Wall Street and investors as traders prepare for 2022:

How will markets react to the likelihood of higher interest rates and more inflation?
How will consumers and economies around the world respond to the uncertainty of new waves of COVID-19?
How will the markets deal with the likelihood of rising tensions in Ukraine and Taiwan and an increasingly toxic political environment in the US?

We can only guess at the answers at this point, but we do know what pushed the markets up in 2021. Catalysts included: The Federal Reserve's policy of keeping interest rates low while the US economy is shocked by the Covid19 pandemic.
The belief/hope in the spring and summer that the worst of COVID was over. The result provided an easing of COVID-related restrictions, a strengthening labor market, robust retail sales and a booming residential construction industry.
Rising and prices that caused oil and gas companies to start drilling again. Crude oil ended Wednesday at $76.56, up about 58% this year. Bullish analysts think crude could move higher in 2022, reaching $100 a barrel. Slightly sweet crude has not traded more than $100 a barrel since July 2014.

But the optimism of investors and traders seemed to wane in November and early December as inflationary pressures became too great for the Fed to ignore.

Gas prices are up 45% this year, after rising 14% in 2020. The US Consumer Price Index for November showed the price of food at home rose 6.4% over the past year. The prices of used cars have increased by 31%. Electricity costs increased by 6.5% compared to a year earlier.

Thank Heaven For The Holiday Rally

The fade started after October came out on November 5. on November 8 and began to decline the following day, sliding to December 21 when a classic year-end rally erupted.

But it was a conservative rally, with many investors looking for mega-cap stocks that worked, especially Apple (NASDAQ:), which rose 7.1% between a low of Dec. 20 and Wednesday.

Apple has also hit nearly $182.80 a share, which analysts say would give the company its first $3 trillion market cap in history. On Wednesday, at the close, the market cap valuation was $2.94 trillion.

Stocks are up 35% this year, with 8.5% in December alone. very large stocks that seemed safe, they seemed happy to buy bonds. The hit reached 1.546% on Wednesday, up 4.2% from Tuesday, but little changed the levels at which it traded ahead of the Fed's Dec. 15 announcement, when the central bank said it was tracking interest rates. year, probably two or three times.

Some bond purchases may be global investors seeking safety. Some economies, especially Turkey, are struggling.

In addition, currency traders may now want to own because they see interest rates rising. Maybe not now, but not too far in the future, according to Matthew Weller.

A worrying signal during the November-December market stress was the sharp decline in the ratio of new 52-week highs compared to new 52-week lows. The ratio was as high as 822 in early March and as low as negative 660 on December 3. There were only two days in December when the ratio was positive.

While the Fed was laying the table, energy stocks were by far the 'main course' in 2021 as an sector in the S&P 500, led by Devon Energy (NYSE:), Marathon Oil (NYSE:) and Diamondback Energy (NASDAQ:), up 180%, 148% and 125% respectively for the year.

The other top sectors were:

Real estate and housing, led by Extra Space Storage (NYSE:), up 95%, Simon Property Group (NYSE:), up 86%, and Mid-America Apartment Communities Inc (NYSE: :), an increase of 80%.
Technology, led by cybersecurity developer Fortinet (NASDAQ:), is up 147% on Wednesday.
Financials, led by SIVB Financial Group (NASDAQ:), was up 76%, Wells Fargo (NYSE:), was up 61%, and Charles Schwab (NYSE:), was up 60%.

The top five Dow stocks so far in 2021 are:

Home Depot (NYSE:), up 55%
Microsoft (NASDAQ:), up 54%
Goldman Sachs (NYSE:), up 46%
UnitedHealth (NYSE:), up 44%
Cisco Systems (NASDAQ:), up 43% (NB Cisco is the top Dow performer for December, up 16%)

Among stocks, the best performing 2021 were:

Fortinet (NASDAQ:), up 147%
Moderna (NASDAQ:), up 137%
NVIDIA (NASDAQ:), up 130%
Applied Materials (NASDAQ:), up 86%
Marvell (NASDAQ:), up 86%

For all the big wins, however, there are under-the-market problems that need attention.

The IPO problem

More than 1,000 companies went online in 2021 , raising more than $300 billion.

The companies that went public made headlines when their stock prices skyrocketed on the first day of trading. But there was a downside: two-thirds of those shares are now trading below their offer price.

The Renaissance IPO ETF (NYSE:) is down 11% over the year.

A few examples:

Robinhood Markets (NASDAQ:), whose trading platform allows retail investors to trade commission-free, went public on July 29 for $38.

Shares hit $85 a few days later, but have fallen to $17.11. That is an 80% drop from the post-IPO peak and 55% from the IPO price.

Swedish oat milk producer Oatly (NASDAQ:), which counts Oprah Winfrey, actor Natalie Portman and former Starbucks (NASDAQ:) CEO Howard Schultz as investors, raised $1.4 billion in mid-May and went public at $17. The stock jumped to $29 in June and is now at $7.88, down 54% from the IPO price.

Rivian (NASDAQ:), the electric vehicle maker, went public on Nov. 10 for $78. It is up 27% in total, but is down 17% in December. Part of the problem for RIVN is that the company has postponed deliveries of its pickup truck and an SUV with a large battery pack until 2023. That saved more than 3% of its share price on Wednesday.

Pandemic winners who eventually slumped.

COVID vaccine maker Moderna, despite its showy performance among NASDAQ 100 stocks, is down 50% from its 52-week high in August, largely because the Food and Drug Administration recently cleared the use of coronavirus pills by Pfizer (NYSE:) and Merck (NYSE:).

Training equipment maker Peloton (NASDAQ:) was a huge winner after the initial COVID outbreak as its stock rose 434% in 2020. This year, however, they are down 76.8%.

And if you're not watching, you might be missing movie theater operator AMC Entertainment Holdings (NYSE:), which saw its shares rise more than 3,300% between the end of 2020 and June 2. 62%.

Even is vulnerable. The most well-known cryptocurrency, which behaves more like a speculative asset than a currency, is up 63% this year, but is also nearly 32% lower than its November 10 peak.

5 We would like to believe it could happen next year

Finally, we risk five assumptions around 2022.

First, the Omicron COVID variant will not be as deadly as the Delta variant, and , slowly but surely more people will be vaccinated and learn to live with their masks and get regular booster shots.
Second, some inflationary pressures, in particular from energy prices, will ease.
Third, the underlying US economy will return people to work for higher wages and, it is hoped, with decent benefits.
Global tensions – in Ukraine, Taiwan and Iran – will ease.
The midterm elections will be civilized.

If these conditions apply, the US economy should continue to grow at a moderately strong pace next year. Fed rate hikes are likely to be measured. Right now, no one has the nerve to crush inflation like the late Fed Chairman Paul Volcker did in the early 1980s.