2021 saw solid gains posted by the S&P 500, Nasdaq, and the Dow Jones. For the S&P 500, what worked best in 2021 was what performed worst in 2020 and vice versa. For example, many of those high growth stocks that led 2020 – think stay at home stocks – massively underperformed. Same could be said at the sector level.
The best performing sectors of 2021 – energy, real estate, and financials – were the three worst performing sectors of 2020. The U.S. bond market, measured by the Aggregate Bond Index, posted its first negative year since 2013 and only its fourth negative year since 1976.
So, what can we expect in 2022? The answer to that question will be found in what growth, inflation, and the Federal Reserve all do. What’s the pace of growth and inflation and which of the two is outperforming? Does the Fed follow through on rate hikes, and if yes, how many hikes are there? What appears to be more certain is that 2022 will be more volatile and a tougher year given that we are later in the economic cycle, prices are higher, and we have moved past peak liquidity.
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