It was another strong year for equities in 2021 with the S&P and Nasdaq each advancing around 27% and the Dow 19%. Much of the rise came as a result of a very accommodative Fed that continued to pump record amounts of cash into the economy and investor optimism over vaccine and therapeutic developments to combat COVID. But not all was rosy in the economy as consumers experienced the highest levels of inflation since 1982 and global trade bottlenecks crimped supply of goods the world over.
In 2020, consumers were stuck at home and not spending. Their savings accounts rose as did their appetites for new entertaining consumer goods and desires to upgrade current gadgets. Yet at the same time factories and ports were shutting down operations in major trade hubs as governments and employers tried their best to contain COVID outbreaks. The result was inflation.
Supply was limited just as demand for goods skyrocketed. Prices for container space jumped, increasing costs on everything from paper products and electronics to oil and gas. However, the worst may be over. Inflation most likely already peaked and will be returning to a normal range by year end 2022. Goods are presently flowing much smoother than just a few months ago and we’ve seen commodity prices recede from their highs earlier this year - a major driver of inflation. And as inflation abates, the Fed most likely won’t be so swift to raise rates as they previously stated was their intention for the coming year.
Twenty twenty-two is poised to be another tricky year as businesses try to navigate pandemic disruptions, but it should bring with it continued economic expansion with investment returns moderating relative to the last two years, but growing nonetheless.