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The stock market has had an incredible year, rising by 25%. However, that number only tells part of the story. A blistering first six months gave way to a more uneven following six, as concerns about inflation, new coronavirus variants, and economic uncertainty took hold.
Coming into 2021, bears sounded a note of caution: equities were overvalued, new coronavirus strains would appear, and the Fed would surely hike interest rates. As it turns out, many of these pessimistic calls were accurate but still couldn’t manage to slow the stock market down.
After the disruption on COVID-19, many experts warned that the road to recovery would be long and winding. However, while that may be true for the economy at large, generous stimulus packages and successful vaccine rollouts meant the stock market bounced back quickly.
Meme stocks, Cryptos, and IPOs
2021 will be memorable for some non-traditional success stories. Reddit “Meme stocks” like AMC and Gamestop grabbed headlines, as retail investors sought to band together and punish hedge funds’ short positions.
On top of that, cryptocurrencies had an incredible year, with Bitcoin gaining over 100% and Ethereum up a staggering 513% at the time of writing. NFTs (like digital art) was one of the other big stories of 2021, sparking considerable debate.
World Equity Markets
In H1, The world equity markets were up 11% on average. However, US and German bonds had their worst first half of the year since 2013. By the end of 2021, the MSCI price share index stood at 12.6% globally. Emerging markets were done 6%, with the US (up 20%) and the UK (9.1%) the best performers.
The momentum gained from a successful vaccine rollout continued into the first half of 2021 before being dragged back by supply chain and inflation worries.
Inflation and Omicron
Towards the back end of 2021, two significant factors caused investors some sleepless nights. A new variant of coronavirus, Omnicron, caused a dip in November. However, the market quickly shrugged it off and recovered.
Inflation was a more persistent worry. Supply chains, a labor shortage, and the price of oil and raw materials contributed to a rise from 1.7% in March to 5% in May. This figure kept rising, closing the year at around 6.5%.
While most managed to weather the storm, inflation slowed down the booming Tech sector, which is so reliant on projected future earnings, which look a lot less appealing in times of high inflation.
IPOs and SPACs
SPAC deals had a solid start to 2021 before slowing down as the year wore on. Interestingly, almost half the acquisitions that raised $1 billion or more are trading below their listing price.
Summary
The stock market had its second-best first six months in 23 years. However, fears over inflation, new coronavirus variants, and supply chain issues dragged on that growth. Considering the variety of negative factors, it’s been a strong year that has defied the bears once again.
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Alpesh Patel OBE