By Kevin Theissen
This past year was a good year for investors. The S&P 500 Index, which is made up of 500 U.S. companies, finished the year up almost 27%. The Nasdaq is up over 21% and the Dow is up almost 19%. Corporate profits were better than expected, the economy expanded, and the Federal Reserve had an easy monetary policy. Concerns about the continuing Covid pandemic and high inflation were muted by low interest rates and increasing profits.
What can we expect from 2022? Over the last 60 years, there have been 26 years in which the total return of the S&P 500 was up 20% or more. In the following year, the S&P 500 was up 20 times, or 77% of the time. The average up year was 18.1%, while the average down year was 6.4%. These performance statistics, however, have no bearing on what might happen in 2022. It will depend on the year’s specific and actual economic conditions.
Will we see the Covid pandemic and reactions to it continue? The economic impact of Delta and Omicron has been limited, but what will happen next?
Stock prices are often driven by corporate profits. We will have to wait and see if they continue throughout 2022.
With the uptick in inflation, the Fed has had to adjust its projections. In its recent December meeting it forecasted a possible percent rate increase in 2022. In the coming months, we will see if these possible increases have already been factored in by investors or not. Also, will inflation diminish soon or will it continue or even uptick? Bond yields have remained historically low in this environment of high inflation, and strong economic growth so we will see if there will be any adjustments to the overall long-term bond market.
We may see a continuation of recent years, or we might see some sort of downturn. Nobody can ever really predict.
Hopefully you have a financial plan based on your goals, time horizon and risk tolerance. This allows you to grow in up years and be protected in down years. Whatever 2022 brings, know that there is always opportunity.
Kevin Theissen is the owner of HWC Financial in Ludlow.