How did the markets do?
2021 just like 2020 featured Covid dominating the headlines. But the stock market also had very positive results, mostly in domestic large companies but also in other areas like smaller companies.
Many areas of the bond market were down in 2021 within a backdrop of rising interests rates and the Federal Reserve poised to raise rates this year on its key benchmark. But bond exposure invested on the "short end" (bonds of shorter maturities, for example 1-7 years versus 20-30 years) paid off as it fared better.
So all and all 2021 demonstrated the benefits of staying diversified and certainly the "right" diversification paid off.
Inflation also dominated much of the financial headlines, and by many measures and reports was the highest in decades. This is of particular interest to a saver or investor because inflation can act as a tax, eroding the value of your dollars if they are not earning a real rate of return at least comparable to the rate of inflation (and ideally in excess of inflation). But of course that is what we focus on in our investing plans.
Themes for 2022
- Inflation - does some of it subside when things like supply chains loosen up? (Think trucking, port congestion, and overseas manufacturers)
- Do we solve labor shortages either buy labor market participation or automation and robotics? Higher wages likely remain "sticky" but that’s a good thing for workers and even the markets as 70% of the economy is driven by consumer spending.
- The Fed raising rates and how does the market handle it? By how much and how fast will overall interest rates rise?
- Overall will the economy and the consumer remain strong?
Our in house forecast is for comparatively smaller to modest gains in the stock markets (~8-10%) with a modest correction of 15-20% at some point (that will surely seem scary in the moment either geopolitically or more likely will be an economic growth scare) but expecting to end the year with positive gains.
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. As with all investments, past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. Diversification does not guarantee a profit or protect against a loss.