 |
| Market Commentary |
| Stock market returns in 2021 were very strong. U.S. stocks, as measured by the S&P 500 Index, posted another banner year, up 29%. International equities lagged their U.S. counterparts but were still up 11%. Results for 2021 remind us of wisdom from Calvin Coolidge, “If you see ten troubles coming down the road (i.e. Delta, Omicron, inflation, Federal deficit, Afghanistan), you can be sure that nine will run into the ditch before they reach you.”Headline CPI (Consumer Price Index) measured annual inflation at 7.0% in December, 2021, the highest inflation percentage since 1982. Unemployment, which had surged to 14.8% in April, 2020, declined to only 4.2% by year-end, and seems to be heading lower in 2022.Bonds, on average, finished the year with marginal losses. Interest rates gradually increased as the Fed started backing off its asset purchase program and telegraphed three or four interest rate increases for 2022. 2021 was only the 4th year in the last 40 years in which the Bloomberg U.S. Aggregate Bond Index was negative.Most commodities surged in 2021, as demand soared and supply chain issues made sourcing materials more difficult. Only gold was a laggard, with slight declines on the year. |
| Market Returns |
 |
| Record High Earnings |
Growth stocks, particularly in the large cap space, have outperformed Value stocks for most of the last decade. However, in the tug-of-war between Value and Growth, inflation and higher interest rates have historically favored Value. Conversely, should Omicron prove persistent, or a new variant arise, a “stay at home” economy may again favor Tech and Growth.Small cap stocks, represented by the Russell 2000, were up 2.1% in the 4th quarter and 14.8% on the year. Healthcare stocks were generally weak in 2021 and had a particularly negative impact on small cap performance. S&P 500 earnings surged in 2021, up over 30% from previous highs, and seem poised for further growth in 2022, as detailed below.The ten largest stocks by market capitalization in the S&P 500 comprise over 30% of the total index weight, an all-time high, even surpassing the go-go days of the late 1990’s.   |
 |
| With many worried about inflation, it is interesting to compare equity returns against inflation over time: The S&P 500 closed the year at 4,766, up an astounding 46-times since the beginning of 1972.With dividends re-invested, an investment of $100,000 at the start of 1972 would have been worth over $19.5 million at the end of 2021. S&P 500 earnings per share were approximately $6 in 1972. Earnings per share have grown to over $200, representing a more than 30-fold increase.S&P 500 cash dividends increased from approximately $3 per share in 1972 to over $60 per share in 2021, up 20-times.The CPI (Consumer Price Index), which measures inflation, was 42 in 1972. Today, it is 271, up a mere 6-times.Much of 2022 will be dependent on inflation. It would seem there are a variety of factors which could lead to inflation being a persistent problem: wages are up, housing prices are up, food and energy prices are up, consumer demand is high and the broad supply chain continues to struggle. |
| Inflation No Match For Long-Term Stock Market Returns |
 |
| Is It A Glass Half Full … |
| Household debt as a percentage of disposable income remains near record lows, while household net worth, as shown at the right, is at record highs. Both portend good news for 2022. Layoff announcements by the end of 2021 plunged to virtually zero. Wages and salaries showed strong increases which will likely benefit consumer spending in 2022. Historically, consumer spending drives about 70% of the U.S. economy. That, combined with strong corporate profits, give reason to be optimistic about 2022.Low inventories are a good sign for continuing economic growth. When inventory levels are low, new orders accelerate production requirements. |
 |
 |
| Or A Glass Half Empty? |
Household debt as a percentage of disposable income remains near record lows, while household net worth, as shown at the right, is at record highs. Both portend good news for 2022. Layoff announcements by the end of 2021 plunged to virtually zero. Wages and salaries showed strong increases which will likely benefit consumer spending in 2022. Historically, consumer spending drives about 70% of the U.S. economy. That, combined with strong corporate profits, give reason to be optimistic about 2022.Low inventories are a good sign for continuing economic growth. When inventory levels are low, new orders accelerate production requirements.  |
 |
| Note #1: Performance returns cited represent past performance, which does not guarantee future returns. Note #2: Index and/or Style returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Investors cannot invest directly in an index. All data represented in this article is derived from non-affiliated sources Moneta deems reliable. However, Moneta does not perform any independent research to determine the accuracy of such information. Opinions expressed herein are solely those of Steven Finerty, Logan Finerty, and their Advisors as of the date of this commentary and subject to change without notice. This is not a solicitation to buy or sell securities. Past performance is not a guarantee of future performance. 2022 Steven L. Finerty, J.D., CFP®, Logan W. Finerty, CFA, CFP®, Jeffrey T. Wist, J.D., CFP®, D. Michael Hollo Jr., CFP®, Randall B. Stauder |
