2021 Closing Thoughts: Market Updates

Written By: Nick Ziarek, CFA, CFP^®, AIF^®

Every few months it’s my turn to write the blog post and I stare at a blank screen trying to think what will resonate with our clients, what is worth writing and will anyone read this (I hope you do!). This time I thought I would share snippets of the more interesting facts I’ve come across recently that might bring some perspective to this past year:

1) Markets continue to show their resiliency and ability to look past the never-ending flood of headlines and reasons why it should fall. In the past year we’ve dealt with societal events like the Capitol insurrection, political events like the return of the Taliban to power in Afghanistan and increasing tensions with China, Presidential agendas that couldn’t find support for one reason or another, and the highest inflation rate in nearly 40 years.

Consider these numbers from the S&P 500:

• 28%: The year-to-date gain as I write this blog (12/30/21).
• 5: Number of times the index closed in the red for the year-to-date period (all in January).
• 6: Number of times the index pulled back at least 4% from its most recent highs.
• 5%: The largest pullback experienced before recovering to new highs (reached in October).
• 70: Number of all-time closing highs in 2021. That is second only to 1995 when the S&P closed at all-time highs 77 times.

2) This stock market peak doesn’t mean we are on a cliff waiting to fall. In 1995 when the S&P hit a record high 77 times, it was followed by positive returns over the next four years: 20.3% in 1996; 31% in 1997; 26.7% in 1998; and 19.5% in 1999. Our friends over at Dimensional Fund Advisors (DFA) did a little research on the topic and found that the average returns one, three, and five years after a new month-end market high were 13.9%, 10.5% and 9.9% respectively. Those results were close to the average returns over any given period of the same length.

3) Remember SPACs (Special Purpose Acquisition Company) and how they were revolutionizing investing? The blank check companies would raise funds from investors faithfully believing management would go and buy out a private company thus making it public. Well, after a hot start where the sector was in the headlines daily and the index tracking it was up nearly 20% in the first 6 weeks of the year, it has since fallen 38% and is now down 25% for the year.

4) Everywhere you look, you see inflation: gas, lumber, groceries, dining out, travel and health care. The official inflation number was 6.8% for November. An influx of stimulus money to get us through the government mandated shutdowns, pent up demand, and a realization that global just-in-time supply chains cannot be turned on and off with the flip of a switch caused inflation to reach levels not seen since 1982. Interestingly, gold is often thought of as an inflation hedge, yet in 2021 while inflation was hitting 40-year highs, gold is actually down 4% for the year.

As the year comes to a close, remember your Shakespeare team is here to answer your questions and make sure your financial plan provides peace of mind. Wishing everyone a happy and healthy New Year!