During the pandemic year of 2020, most of us read (and used) the phrase “unprecedented times” … with … well … unprecedented frequency. That makes sense, of course, since the whole world was experiencing something truly unique in the experience of anyone living. But the year just finished also had a number of “unprecedented” attributes. From stock market records, to increases in housing prices, to skyrocketing inflation, 2021 was another year of many “firsts” that are still having economic, financial, and lifestyle impacts for many companies and investors. Let’s take a look at a few of the “unprecedented” happenings of 2021.
1. Equity markets. By any measure, 2021 was a big year for stocks. With the Dow rising from around 31,000 in early January to just over 36,000 by year-end (a gain of 16.1%), and the broader market, as measured by the S&P 500, going from just over 3,800 to 4,766 (an increase of 25.4%), most investors witnessed some nice growth in the equity portion of their portfolios. Some of that is attributable to broad improvement in corporate earnings as the pent-up demand induced by the pandemic provided a fertile environment for business growth. While the ongoing pandemic (lately, the omicron variant) and economic factors produced some intermittent headwinds, the main story for stocks in 2021 involved an upward trajectory, with several all-time high readings along the way.
2. Inflation. Speaking of economic factors, 2021 also saw the resurgence of inflation. Starting with the Great Recession and the associated Fed stimulus strategies of 2007–08, we grew accustomed to inflation in the 1.5–2.5% zone, and the massive liquidity programs the Fed threw at the economy in response to the outbreak of the pandemic did nothing to change that. But with the economic recovery heating up, all that liquidity chasing a limited supply of goods and services had to rekindle inflation at some point—and we reached that point in 2021. In early spring, the annualized rate of US inflation was 1.7%, but by late spring it was at 5%, with a bullet. By the end of the year, inflation was running at 6.8%, the highest rate since the 1980s. Not surprisingly, the Fed has announced its intention to begin “tapering” (i.e., turning off the liquidity spigot) in an effort to avoid runaway increases in the Consumer Price Index (CPI), the government’s key measure of inflation.
3. The housing market. Looking at a chart of historical home prices for 2021 is strongly reminiscent of looking at the stock market for the same period: it’s essentially vertical, and ascending. Many analysts attribute a change in homebuyer attitudes induced by the pandemic: as everyone hunkered down, the desire to be in “the right house” made many buyers willing to pay a premium for the home they considered most desirable. That, coupled with historically low mortgage rates, created a sort of “perfect storm” in the housing market. At least one index of average home prices in the US hit a new all-time high in September 2021 and surpassed it the following month.
4. The debt ceiling. Once again, 2021 saw a renewal of the periodic stare down in Congress over the debt ceiling. After the requisite amount of posturing by both sides, the limit was raised in time to avoid default by the federal government. The US debt ceiling now stands at an all-time high of $28.9 trillion.
As we enter 2022, nobody can predict with complete accuracy what lies ahead, in part due to the many unprecedented times we have experienced over the past two years. The themes of “Unprecedented Times” and even “The New Normal” seem to be part of our daily lives now. In trying times like these, it’s important to focus on what you can control rather than what you cannot.
You may not be able to control the outcome, but you can control your reaction to it. If you remember this, you will be better off in your own life. I continue to promise you that I will be by your side through it all as we continue to work together towards addressing and achieving all of your financial planning needs and goals.
I thank you again for your continued trust, support, and confidence in my ongoing guidance, along with your friendship. I truly value you.
I wish you and your family a calmer and happier 2022.