2021 in Review: The Whirlwind Continued
If you rang in 2021 with hopes that the new year would bring some calm after a tumultuous 2020 ... sorry. We hope you made it though with your health and sanity intact.
Last year's market review referenced some Beatles' lyrics from the Sgt. Pepper's Lonely Hearts Club Band album: "It's getting better all the time... can't get no worse." The good news— the outlook is getting better, though the pandemic endures. But the whirlwind effects of Covid continued to rattle just about every corner of our lives.
A few of the buzzwords and phrases that dominated last year's headlines:
insurrection, impeachment, variant, vaxxed, double-vaxxed, boosted, delta, omicron, hybrid working, transitory inflation, "the great resignation", non-fungible tokens, supply chains disruptions, labor shortages
Amidst all this we did persevere. Actually, perseverance was the Cambridge Dictionary's Word of the Year. And we remain optimistic that 2022 will offer a sense of stability that has so far eluded us.
2021 did have its moments:
- ABBA released their first album in 40 years.
- The planet gained a 5th ocean as the National Geographic Society recognized the Southern Ocean that encircles Antarctica.
- The UN declared 2021 the International Year of Fruits and Vegetables.
- Squid Game became the most watched show in Netflix history.
- Keeping Up With The Kardashians came to an end after 20 seasons.
- William Shatner, Captain Kirk from Star Trek, went into space.
- Britney Spears was finally released from her 14-year long conservatorship.
- The Cleveland Indians announced their new name... The Guardians.
The Markets in Review
Investors had plenty of reasons to celebrate 2021.The S&P 500 returned 29%, hitting new highs 70 times over the course of the year, with a backdrop of strong corporate profits, low interest rates, and an expanding economy. It was the third straight year of double-digit gains for the index. Along the way, investors that were broadly diversified saw limited volatility, with the S&P 500's largest pullback being only 5.1%. On the bond side, interest rates rose, as the 10-year Treasury yield increased from 1.07% to 1.51% over the course of the year, leading to negative or muted returns for most bond investors, after several strong years.
Here's a brief summary of the performance of several market indices:
| Index | 2021 Total Return |
|---|---|
| U.S. Large Cap Stocks
S&P 500 Index1 |
28.71%
|
| Total U.S. Stock Market
Russell 3000 Index2 |
25.66%
|
| International Developed Market Stocks
MSCI World ex USA Index, net3 |
12.62%
|
| International Emerging Market Stocks
MSCI Emerging Markets Index, net3 |
-2.54%
|
| Global Real Estate Securities
S&P Global REIT Index, net1 |
31.38%
|
| U.S. Taxable Bonds
Bloomberg U.S. Aggregate Bond Index4 |
-1.54%
|
| U.S Tax-Exempt Bonds
Bloomberg 1-5 Year Municipal Bond Index4 |
0.35%
|
Past performance is not a guarantee of future results. You cannot invest directly in an index. See Notes.
Looking Forward
Markets are facing a number of headwinds as we start the year. The Federal Reserve is clearing the way for a series of interest rate hikes, possibly starting in the spring. Recent inflation numbers are at decades-long highs, though many investors are optimistic that inflation will subside. While the omicron variant is rapidly sweeping the country, it's severity appears to be much lower than previous Covid strains — that's welcome news.
We may not see the same kind of double-digit stock market returns that many have gotten used to. Vanguard, in their 2022 Economic and Market Outlook5, forecasts median returns for U.S stocks over the next ten years to be in the low single digits, with international stocks offering somewhat higher expected returns.
With a muted long-term outlook for stocks, and expectations that interest rates will continue to remain low, returns on balanced portfolios may be significantly lower over the next ten years than the last ten. What should investors do in response?
Our advice remains consistent. Focus on what you can control. You do have a say in three of the most important factors in financial planning – how much you save while working, when you retire, and how much you spend during retirement.
A Few Lessons Learned (or re-learned) During 2021:
- Nothing is more important than your health and the health of your loved ones.
- Politics, especially when amplified by social media, can painfully divide us. Empathy and kindness can unite us.
- It's very difficult to predict the market's moves. Stick to your plan. Stay diversified.
Once again, best wishes to all for a happy and healthy New Year!
David Rappaport, CFP®
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.