There were several events in 2021 that had significant impacts on the financial markets, including new Covid variants, Federal Reserve Policy, and a changing economic climate. Here’s a recap of some important events that happened last year and an explanation of why they’re essential moving forward.
And if you want to see what Fragasso Financial Advisors wrote about the first and second half of 2021, be sure to review A Look Back on 2021 Part 1 and Part 2 for all the details.
One of the significant events that launched the events of 2021 was investor euphoria and interest in meme stock investing. Gamestop (GME), the retail video game and consumer electronics retailer, saw its stock prices surge in January.
For years following the Great Recession of 2009, Gamestop struggled as many Americans opted to buy online and purchase video games digitally. But retail investors made a massive bet against institutional investors shorting the stock after multiple failed attempts to adapt to a changing retail landscape.
March saw the rise of “bond vigilantes,” unhappy with the Federal Reserve’s quantitative easing policies. These investors believed that bonds were overpriced and that bond prices would decrease.
This led to a dramatic fall in the bond markets, and it signaled how serious investors were about Federal Reserve Policy. While the bond markets were falling, domestic stocks increased in value, with the S&P 500 rallying 4.38%.1
Discussions about inflation became mainstream, as reports showed that retail prices were increasing rapidly during the second quarter of 2021.
Although investors felt it was temporary, and the Federal Reserve began taking actions to tighten monetary policy, they also began to fear that the Federal Reserve would overreact to prevent interest rates from spiking.
When Virgin Galactic completed the first commercial flight to space, the space race heated up. With the success of Virgin Galactic, other private companies began making plans for commercial flights into outer space.
This was also when Amazon (AMZN) reached its trillion-dollar valuation. With Amazon’s market capitalization at over $1 trillion, Jeff Bezos became the wealthiest person in the world, surpassing Bill Gates, only to later be surpassed by Tesla Founder Elon Musk.
In September, home prices were a primary focus for investors, as housing prices saw an end-of-year surge while new home sales also increased.
The rise in home prices showed that investors were beginning to believe in a new housing market bubble. As more people were working from home, there was a need for more office space, leading to high demand in home prices, especially those with “office rooms.”2
There’s no doubt that 2021 was a unique year with many challenges, surprises, and new events. Fragasso Financial Advisors is committed to providing their clients with proactive investment and financial planning advice, in accordance with such economic and political climate events like those referenced in this article. If you would like to learn more about Fragasso Financial Advisors philosophies and methodologies, visit https://www.fragassoadvisors.com.
Investment advice offered by advisor representatives registered through Fragasso Financial Advisors, a registered investment advisor.
Investment in the portfolios mentioned in this document may not be suitable for all investors. Past performance is not a guide for future performance and should not be the sole factor in consideration when selecting investments. The price of investments may go up or down and the investor may not get back the amount invested. Your income is not fixed and may fluctuate. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. Levels, bases and reliefs from taxation can change.
Past performance is no guarantee of future returns.
A word about risk: Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in the bond market is subject to certain risks including market, interest rate, issuer credit and inflation risk; investments may be worth more or less than the original cost when redeemed. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuation, economic and political risk, which may be enhanced in emerging markets. Mortgage and asset–backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer credit worthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. High-yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risks than portfolios that do not. Alternative strategies such as arbitrage, hedged equity, market neutral or long/short may result in higher internal transaction costs and tax consequences of short-term gain. Funds may engage in option transactions and short sales. Option transactions involve special risks that may make it difficult or impossible to unwind a position when the fund desires. With short sales, you risk paying more for a security than you received for its sale. In addition to the normal risks associated with investing, merger arbitrage strategies may realize losses if the proposed reorganizations in which the strategy invests are renegotiated or terminated. Other arbitrage strategies may include but are not limited to convertible risk, synthetic convertible risk, convertible hedging risk, and covered call writing risk. In hedged equity strategies, selling index call options can reduce the risk of owning equities, but it limits the opportunity to profit from the increase in the market value of equities in exchange for the upfront cash at the time of selling the call option. Additionally, hedged equity strategies may lose part or all the cash paid for purchasing index put options. Unusual market conditions or the lack of a ready market for any option at a specific time may reduce the effectiveness of a hedged strategy. Diversification does not ensure against loss. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors. Each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.