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December 2021 economic & market recap.

Jobs and Unemployment

December’s job report was a pleasant surprise when just released a few days ago, far surpassing expectations and estimates. According to private payroll firm ADP, employers added 807,000 jobs in December 2021, an exceedingly strong finish to 2021.

Previous estimates anticipated only 360,000 jobs to be added in December, less than half of the actual true number of hiring. December’s 807,000 new hires also blew past November’s strong 534,000 additions. 

The biggest job gains were seen by the service sector (+669,000 jobs) and among larger firms (+389,000).

At the time of this writing, the Labor Department hasn’t released their jobs report for December 2021 yet, which factors in government jobs, too, and may be slightly less glowing.

For the year, 2021 saw a monthly average of 514,000 new jobs and a Q4 average of 625,000.

While those are encouraging signs for the economy heading into 2022, it’s important to note that 2021’s 6 million job gains still leaves up about 4 million jobs short of pre-Covid (2019) numbers.

Inflation

As 2021 came to a close and we now roll into 2022, the data is starting to pour in that encapsulates all twelve months of this past year, or reasonably close.

And the reports on inflation are definitely not encouraging, although that’s not unexpected. The Consumer Price Index rose 6.8% throughout 2021 (latest data), the sharpest increase since 1982 – 40 years.

Those price increases haven’t ceased in 2022, but there are plans in place to temper inflation, such as FED rate hikes.

The U.S. Stock Market

For December 2021, the U.S. stock market ended the year with a roundly positive showing. For the month, all three major stock indexes posted gains:

Dow Jones +5.4%

S&P 500 +4.4% 

Nasdaq +0.7% 

For Q4, all three benchmarks also posted gains:

Dow Jones 7.4%,

S&P 500 +10.7%

Nasdaq +8.3%

The state of the stock market in 2021

For 2021, Wall Street’s returns were even more positive:

Dow Jones +18.7%

S&P 500 +26.9%

Nasdaq +21.4%

The Dow and Nasdaq ended just short of record highs, and the S& P 500 finalized the year with its 70th record close.

The Dow’s 30-year annualized price return registered 8.7% in 2021, only its third year of double-digit gains. 

The biggest winner for 2022

Remember GameStop and all of the ensuing craziness a year ago (although it feels like years ago!)?

After an unprecedented flurry of activity in January 2021 where 100 million shares were traded daily and the fledgling video game retailer’s stock was up 2,700%, GME concluded the year up a meteoric 724.5%. 

Looking at GameStop as an anomaly, the top equities in 2021 included Upstart Holdings (UPST) +%281.4, Devon Energy (DVN) +%176.2% and Continental Resources (COR) +%173.7

In terms of industries, both the energy and real estate sector saw their biggest years ever in 2021.

The biggest losers of 2021

Not all stocks showed stratospheric gains in 2021, as there were some big losers, too.

In fact, the five worst-performing major Dow Jones stocks in 2021 included:

Walt Disney (DIS) -14.5%

(Disney stock also fell 8.4% in Q4 alone.)

Verizon (VZ) -11.6%

(-3.8% in Q4)

Boeing (BA) -5.95%

(-8.5% in Q4)

Amgen (AMGN) -2.15%

(+5.8% Q4)

An eye on the Federal Reserve

It’s a foregone conclusion that the Federal Reserve Bank will raise rates to counter inflation, but the question remains when and how much the chief bank will raise rates and taper asset purchases. But minutes released from the latest Fed meeting indicate that they may do both of those things and reduce their balance sheet from the nearly $9 trillion in assets they hold.

While the indication that the Fed may reduce its stockpile of Treasuries and mortgage-backed securities may be a strategy to reduce inflation, it sent the market spinning as uncertain investors tried to reassess the central bank’s intentions.

Expect some clarity or at least clues into the Feds more aggressive tone when Jerome Powell speaks in mid-January at his confirmation hearing or again when they meet officially on January 25-26.

Sophomore slump?

If this current administration is facing their fair share of economic bad news and eyebrow-raising doubts, they may not be alone. Actually, most presidents experience something of a “sophomore slump.”

That’s the conclusion of research CFRA research chief investment strategist Sam Stovall among others, who found that historically, the second year of any president’s term is typically 40% more volatile than the year earlier or the two years after.

But Stovall also has some salving thoughts for Biden’s economic impact in 2022.

“I think that 2022 is going to be a good year that tends to follow a great year,” said Stovall. 

Working for the weekend

The U.S. equity markets were open for trading on New Year’s Eve this year, a rare occurrence and the first time they’ve been open on December 31st in ten years. It’s all thanks to NYSE Rule 7.2, which mandates trading is closed either Monday or Friday if a holiday falls on a weekend – except in case of “unusual business conditions, such as the end of a monthly or yearly accounting period.” 

Apparently, the last trading day of 2021 was such an exception and Wall Street was humming on New Year’s Eve! 

Looking ahead

Speaking of historical trends, if history repeats, 2022 will be another very solid year for equities in the U.S.

Going back to 1950, whenever the S&P 500 hits the 25% mark for total returns in a year, stocks usually gain in the following year (in this case, 2022). In the 71 years since 1950 when stocks gained 25% or more, the S&P 500 advanced about 82% of the time (14 out of 17 occasions) the following year.

Crypto is fickle, volatile, unsafe…and really big

By now, many people have been bitten by the crypto currency bug – and almost as many people have lost money. But there’s no denying the sheer magnitude of crypto currency mania, as the global crypto market is now estimated at $2.2 trillion.