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By Peter Nurse, Liz Moyer, Sam Boughedda and Yasin Ebrahim
Investing.com -- The year 2021 is rapidly drawing to a close, and while it has been a significant improvement, market-wise, to the previous year, there was plenty of volatility along the way.
As we move into 2022, here's a look back at the year that was.
First Quarter: Biden arrives
January: The new year started as the old one had ended with the Covid-19 virus casting an ominous shadow over the global markets. The official global death toll breached the 2 million mark in January.
Supporters of President Donald Trump stormed the U.S. Capitol in Washington, resulting in five deaths and Trump’s impeachment, the first time in history a U.S. President was impeached twice. President Joe Biden’s inauguration did proceed smoothly in the end, and he promptly unveiled a $1.9 trillion Covid-19 stimulus package.
Markets found a new trading theme - inflation.
The Covid-19 lockdowns contributed to supply chain disruptions and brewing inflation, and the stimulus deal amped up the pressure. The Federal Reserve said short-term price increases were not a concern, but traders began anticipating it would have to act. U.S. bond yields started to climb, and the dollar rose in tandem.
After starting the year around $30,000, Bitcoin jumped to over $40,000 before slumping 10%.
So-called ‘meme’ stocks were on the rise. Video game retailer GameStop (NYSE:GME) was central to this phenomenon. Professional short-sellers had positioned themselves for a fall in the stock given the videogame retailer’s lack of an online presence during the pandemic. Retail investors, helped by social media sites and cheap trading platforms, were eager to give hedge funds a bloody nose and rushed in. GameStop’s stock soared 400% in the last week of the month.
February: Equity markets headed higher in February, as optimism that the mass rollout of Covid vaccines, including a new one by Johnson&Johnson (NYSE:JNJ), would mean a prompt return to normalcy.
Jeff Bezos announced he was stepping down as CEO of Amazon (NASDAQ:AMZN) after 30 years, having grown the company from his garage to the largest U.S. e-commerce retailer by market capitalization.
U.S. government bonds saw a sharp sell-off late in the month, with yields climbing sharply after tepid demand at a Treasury bond auction.
Bitcoin jumped 50% through the $58,000-mark, claiming a market capitalization of $1 trillion, as heavyweight institutions such as Tesla (NASDAQ:TSLA) and Mastercard (NYSE:MA) embraced the cryptocurrency.
Crude prices continued to recover on growing confidence that oil demand would rise sharply as vaccines helped global economies reopen. A major winter storm in Texas helped, shutting down supply.
In politics, former President Donald Trump was acquitted in his second Senate impeachment trial as the Republican Party mostly stayed loyal. Mario Draghi, former head of the European Central Bank, was sworn in as Italian Prime Minister, while civilian leaders, including Aung San Suu Kyi, were detained in Myanmar after a military coup.
March: The search for normalcy continued. The rollout of Covid vaccines, particularly in the U.S. and the U.K., helped equity markets rise.
The U.S. S&P 500 index rose by over 4% in March whereas the Nasdaq 100 index gained just under 0.5%, as growth stocks continued to underperform their value counterparts.
In the European Union, a lack of vaccination logistics organization was exacerbated when AstraZeneca (NASDAQ:AZN) struggled to deliver as many vaccine doses as promised. Then a blood clot side effect problem created doubts about its viability.
Inflationary fears continued to unnerve bond markets with the U.S. 10-year yield climbing steadily, ending the month at 1.73%, after the passing of the $1.9 trillion stimulus package and with a substantial infrastructure plan in the works.
Bitcoin broke $60,000 for the first time, before pulling back in volatile trading.
Crude prices pushed higher, with the global benchmark Brent rallying to $65 a barrel. Late in the month, a 224,000 ton container ship, owned by Evergreen Marine, got lodged in the Suez Canal, creating a traffic jam in one of the busiest waterways in the world.
Second Quarter: Trust me, it’s just transitory
April: Large-cap stocks got all the attention as the second quarter kicked off a period of strong earnings and economic data. The S&P rose 5.3%, while the Nasdaq rose 5.4% and the Dow Jones Industrial Average rose 2.8%.
The Federal Reserve stayed committed to keeping the stimulus spigot open a year after slashing rates to zero, holding fast to its view that any price increases would be “transitory.” Inflationary pressures that showed up in March seemed to calm a bit in April, with the 10-year Treasury yield easing back to 1.63%.
By month’s end, about 100 million Americans had received their Covid shots, a hopeful sign that the economy could recover quickly. But unemployment remained elevated at 6% and 2 million or so Americans were still missing from the labor force compared to conditions before the pandemic erupted.
U.S. job growth disappointed in April, but the full scope wasn’t appreciated until May, when the monthly jobs report for April showed 266,000 new jobs added in the period. Economists had expected 1 million. The weaker-than-expected number sparked debate about whether extended extra unemployment benefits were keeping workers from seeking jobs.
Bitcoin reached a high of $63,400 in April but then tumbled back to $50,000.
May: The Dow Jones Industrial Average climbed another 2.2% for the month, and the S&P 500 rose 0.7% while the Nasdaq dropped 1.4%. Fears about inflation started to dig in amid talk of rising costs and labor shortages.
Consumer and producer prices continued to surge. They weighed against labor shortages, rising wages, shipping delays and material shortages.
President Biden set July 4 as the deadline to get at least 70% of American adults vaccinated with at least one shot. By month’s end, 135 million Americans were fully vaccinated, but a variant of coronavirus called Delta was surging in India and would land on U.S. shores soon enough.
A late-month rally in stocks was a reaction to the minutes of the Federal Reserve’s April policy meeting, where officials signaled a shift in their thinking. The minutes said continued progress with the economy could make it appropriate for the Fed to start talking about the timing of its bond purchase taper, the first step in reducing the stimulus that flowed through the economy since the beginning of the pandemic. The 10-year Treasury fell back to 1.59% at month’s-end.
Bitcoin traded above $59,000 on May 8 and then fell to a four-month low.
June: Though a surge in coronavirus cases caused European governments to second-guess their reopening plans, stocks continued to climb. The Nasdaq rose 5.5%, while the S&P 500 advanced 2.3% and the Dow Jones Industrial Average was flat.
By now, Fed officials were signaling the likelihood of two interest rate hikes in 2023. Chair Jerome Powell said substantial further progress would be needed to start the taper.
Two-thirds of workers said employers had encouraged staff to get their vaccination, with half saying they got paid time off to get it or recover from side effects. In June, 25 states withdrew the extra unemployment benefits that had been going out to people since the pandemic, arguing the extra money kept people out of the workforce. The economy added 850,000 jobs that month, and the unemployment rate was 5.9% from 5.8% in May.
Third Quarter: It’s infrastructure week, finally
July: The lingering Covid-19 pandemic left concerns about whether the economic recovery would continue throughout the rest of the year, creating volatility.
U.S. equities ended the month higher, as did U.K. and European equity markets.
China's regulatory clampdown hit Chinese U.S. listed stocks hard. Ride-hailing company and NYSE-listed Didi Global saw its shares close the month down 27%.
The Fed said after its July meeting that the economy was making progress. However, it maintained asset purchases and said it is appropriate to keep the current target rate range until labor market conditions have improved.
After moving mostly sideways since May, failing to break above the $41,000 mark after a couple of attempts, Bitcoin closed the month at $41,490.
The Senate began debate on a $1 trillion bill to rebuild the nation’s infrastructure, including money for bridges, roads, rail and ports, and the build out of broadband and clean energy projects.
August: The tech sector helped drive U.S. equities higher in August to touch new highs. Powell made dovish comments at the Jackson Hole Symposium but also said bond purchases could be reduced before the end of 2021.
The benchmark S&P 500 rose for the seventh-straight month after a 3% gain, the Nasdaq 100 climbed 4% and the Dow rose over 1%. This was against the backdrop of supply chain challenges, inflation concerns, the spread of the Covid-19 Delta variant, and labor market shortages.
WTI crude oil fell 7% in August, its worst month since October 2020, as demand concerns increased once again when Hurricane Ida forced the closure of U.S. refineries.
The U.S. dollar hit a new high for 2021 in August, touching the 93.73 level before quickly retreating throughout the rest of the month. However, the decline wasn't enough to put it into negative territory. It closed out August over half a percent higher.
After the breakout towards the end of July, Bitcoin gained some momentum in August, closing out the month over 13% higher.
The Senate passed the infrastructure spending bill, but not without considerable debate over whether to pair its passage with a larger spending bill focused on social initiatives. The House wouldn’t pass it until November.
September: September saw U.S. equity markets sell off, erasing the previous month's gains and staying true to the usual seasonal September decline. The S&P 500 fell 4.8%, the Nasdaq 100 closed September down over 5% and the Dow finished the month down 4.2%.
The majority of FAANG stocks fell in September, with Meta (formerly known as Facebook (NASDAQ:FB)) down over 10%, Amazon down over 5%, Apple (NASDAQ:AAPL) 6.8% lower, and Google (NASDAQ:GOOGL) over 7% lower. Netflix (NASDAQ:NFLX) was the outlier, gaining over 7% during the month. Elsewhere, the energy sector rose 9% after spikes in oil and natural gas prices.
There were significant concerns for the Chinese real estate market and Evergrande bondholders after the property firm ran short of cash in the face of mounting debts, an issue that is still ongoing. China also continued to impose stricter regulatory reforms — another concern for investors.
In the Federal Open Market Committee Meeting, Powell said tapering could begin as soon as November. He also said that rate hikes would not start until the tapering was complete.
A promising start to September for Bitcoin was short-lived after it failed to penetrate the $53,000 level and ended being down 7% for the month.
Fourth Quarter: Focus shifts to inflation
October: Stocks started the fourth quarter on the front foot as investors looked ahead to the quarterly U.S. earnings season to get a sense of how companies were holding up against rising costs.
Corporate America duly answered the call, delivering its strongest quarterly earnings in more than a decade.
Fears that surging costs from clogged-up supply chains would hold margins hostage quickly dispersed as firms were able to pass on costs to consumers.
The S&P 500, Dow Jones, Nasdaq, and Russell 2000 all swelled to all-time highs. Tesla was one of standout performers of the month, racking up gains of 44% en route to a record high.
Bitcoin leapt to record highs as the wider investment world cheered the coming of age of the moment for the popular cryptocurrency: A futures-based Bitcoin exchange-traded fund.
The Securities and Exchange Commissions approved the ProShares Bitcoin Strategy fund.
The traditional fourth-quarter rally in Bitcoin and stocks appeared to be a done deal.
Bond markets, however, kept some of the optimism in check, as the yield curve continued to flatten – a traditional doomsday sign.
November: Investors were reminded that the pandemic continued to be a main market risk event as a new variant emerged from South Africa. Armed with the tools – via several mutations – to evade our most effective vaccines, Omicron sent shockwaves through markets.
Europe was soon under siege. Covid lockdowns in parts of Europe were back in vogue.
As investors awaited further data to assess the threat carried by the Omicron variant, they had to contend with another negative surprise: The ‘Powell Pivot.’
Testimony from Powell before Congress, proved to be a monumental moment for monetary policy. Against the backdrop of U.S. inflation running at the hottest pace in three decades, Powell said it was time to delete the word “transitory” from our inflation vernacular.
The Fed chief signaled that the pace of bond tapering would be accelerated to allow enough room to begin hiking rates.
For the first time in a while, investors were forced to remove their Fed-tinted glasses. And they didn’t like the unknowns before them.
Is the ‘Fed Put’ dead? How far behind is the Fed on the curve? How many hikes will it take for the Fed to catch up, and could that lead to recession as the Omicron impact threatens the recovery?
Investors didn’t hang around for answers and uncertainty soon swept through markets, delivering a blow to risk appetite.
The Bank of England reprised its role as the ‘unreliable boyfriend.’ It unexpectedly kept monetary policy unchanged.
December: The final month of the year was characterized by wild swings in either direction as investors started counting down the days until the Fed’s last monetary policy meeting of the year, betting that the Fed would double the speed of its bond purchase tapering to $30 billion per month.
The consensus on rate hikes was less than straightforward, as some were in the two hikes in 2022 camp, others were clinging onto one.
The Fed sprung a hawkish surprise, with members forecasting three rate hikes for 2022 followed by another three in 2023.
In the press conference that followed the monetary policy statement, Powell delivered arguably his best monetary policy Q&A during his tenure as Fed chair.
The chief acknowledged the threat of inflation, but also reassured markets that the economy was strong enough to deal with the Fed’s tightening plan.
Markets rallied with tech delivering strong post-Fed gains. And talk of “Apple $3 trillion valuation,” was on the agenda once again. Some on Wall Street had even harbored hope that the “Santa Rally” would make a late appearance.
But the positive sentiment quickly faded as the economic threat of the Omicron variant lurked in the background.
See our full 2022 outlook series here.