2021 was a banner year for equities, as fiscal and monetary stimulus continued to pour into the economy to help aid the pandemic. 2021 also brought some of the strongest economic and earnings growth we have seen in decades, as the economy continued to reopen. In addition, consumer demand was at levels we have never seen before. In the third quarter, US corporations pulled in record profits — both in terms of dollar and as a shard of GDP. As we continue into 2022, we remain positive on equity markets, but do believe that the pace of market growth should slow down and normal periods of volatility will return (as we’ve already seen) as the Federal Reserve begins to raise interest rates.
Though the market had a strong year, there were certain challenges that the economy endured — most notably being labor shortages, supply chain issues, and rising inflation. Prices increased rapidly in areas such as food and energy and the US consumer price index (the measure of inflation) jumped 7.0% from December 2020’s levels — an increase we haven’t seen in nearly four decades. The media certainly had its fair share of opinions on where inflation would go, what was causing it, and just how long it might last. I think we heard the word “transitory” more in 2021 than in all my previous 20 years in this business.
The markets are coming off a strong 3-year period, and we saw our clients’ percentage stock allocation become greater than their intended targets. To address this, you may have seen that we rebalanced our portfolios back to target (another way to think about this is taking profits off the table). If there is one thing I have learned in my career, it is that you can never go wrong sacrificing some profits for increased stability — greed is dangerous.
Last year, the S&P 500 hit 75, closing record highs. Reaching new highs doesn’t mean that the market will move lower the following year. At the end of the day, corporate profits generally drive the market and we expect those to remain high.
No one can predict where the market will go next, the timing of the next crisis, or the end of any existing ones. New challenges are always over the horizon, but rather than guessing what those challenges are, investors can choose to trust and believe in their long-term financial plan. 2021 was about discipline, planning, and ignoring the news headlines. As we enter 2022, we believe that these same principles will help lead to successes.
If you have questions for our team or would like to schedule time to discuss your plan, let us know! If you are not currently a client, but would value a second opinion, we are here to help. Now is the time to review your current plan to make sure that it is properly positioned for the future.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Myles Zueger and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.