The year 2021 was to be a year of ‘promise’ with Covid vaccines rolling out along with the reopening of the U.S. services and tourism economies allowing more people to get back to work. In many ways, it was a year of progress until two variants took hold with Delta during the summer and Omicron running rampant at year-end.
As we transition into 2022, we want to reassure you there is still ‘hope’. Even through we all know people who contracted Omicron and/or we had it ourselves, we thank God it’s a less dangerous version. Vaccines and new treatments are also working to help minimize the lethal impact. As the world awaits the end of this pandemic, let’s briefly review what happened in 2021 and look ahead to 2022.
The S&P 500 Index rose a hefty 27% in 2021, but publicly traded real estate (REITs) and small cap value stocks outperformed the S&P 500 while International and Emerging market stocks lagged. All the major global stock indices were positive in 2021. (Source: Morningstar)
As a recent article in the Wall Street Journal pointed out, stocks are cheaper now than they were a year ago: The S&P is trading at 21 times analysts’ projected earnings over the next 12 months, down from 22.8 times at the end of 2020. Lower valuations, together with an expanding economy and ultralow interest rates, help explain why most Wall Street forecasters predict that stocks will continue to rise in 2022, but maybe with lower returns.
We provide caution however as valuations in various sectors are not equal. “The S&P 500’s tech stocks are currently trading around their highest levels in nearly a decade at 28 times. Consumer-discretionary stock multiples have contracted from 2020’s all-time highs, but remain at 33 times, well above levels going back to 1999. The S&P 500’s energy sector trades at 11 times earnings, which is below average. Financials trade at nearly 15 times forward earnings.” (1)
Small-cap stocks are also a favorite for several money managers, especially with the dollar possibly rising in 2022.
But questions remain and change is in the air as inflation remains high, numerous jobs remain unfilled, action is pending by Congress on additional spending bills and changes to tax laws, and the Federal Reserve is likely to raise interest rates. This combination of factors has created what Wall Street calls headwinds, which means 2022 may still become more volatile than 2021 with the S&P 500 recording 70 new record highs throughout the year. (Source: Wall Street Journal)
With all that said your portfolio continues to serve you well. Our investment approach is long term in nature and your portfolio is constructed with broadly diversified global allocations including small cap and value stocks. We remain focused on improving people’s lives by caring for your total financial well-being. Your personal goals, your personal plans, your personal portfolio, and our ongoing progress reviews all lead to our purpose of bringing hope to you and your family.
- WSJ: Cheaper Stocks Boost S&P 500’s Prospects in New Year – January 2, 2022