So we see another year is now in the record books. Just like I said this time last year, there's probably some things about 2021 we hope to not have a part of our lives as we move forward. Nonetheless, they were a part of 2021 and a few of those things we will review in terms of what happened and possibly why. I will also talk about a few things that did not happen and the possible whys of those as well.
Overall, 2021 outperformed 2020 in terms of the broad stock indexes. As you can see in the graph below, while none of the stock indexes actually made it to a 30% gain for the year, they all were definitely in positive territory and the S&P 500 carried the day. All of the major indexes finished the year with double-digit returns.
This graph below is a little crowded but it really shows how diverse and how changing the markets were in 2021. All the major stock indexes gave use double digit returns but the differences are quite staggering.
Basically, for the full year they averaged more than twice what they've averaged per year since the beginning of this century. It's most interesting to note that the index which led at the beginning of 2021, the Russell 2000, finished the year rising only about half the amount that the S&P did.
So oftentimes, when there's good performance, it's natural to want to know where that performance came from, what drove the performance in the direction and to the height it moved to.
The strongest push this year in terms of the broad stock indexes came from the energy sector.
It really is amazing the performance that the energy sector had in 2021 because in 2020 it was the worst sector in stocks. It ended 2020 down some -35% and yet came roaring back in 2021, jumping up more than 50% for the full year.
The other strong sectors we saw in 2021 probably don't come as a surprise. Technology and real estate were both in the top gaining sectors for 2021 as well. Though we sold the energy sector the first week of December, we continue to hold technology and real estate for many of our clients still today.
If we want to look at developed economies around the world, no country across the globe came anywhere close to matching the S&P 500. About the best that happened from developed countries was about half the return of the S&P and a few of those countries only brought single-digit growth.
When we look to fixed income and the bond markets, in 2021 they too were completely different from the results of 2020.
Here below we see that at the beginning of 2020, U.S. Goverment 10 year bonds had a yield of 1.81% but at year end, that had collapsed to exactly half of that....
Only to rise again in 2021 by almost 65%! Finishing the year at 1.67%!
If you recall, in early 2020 when the pandemic was first announced, government bonds skyrocketed up almost instantly while stocks fell about -34% in 30 days. These bonds then held a good bit of their gains through the full year of 2020, finishing up about 15%. This upward movement did not hold true for bonds during 2021. Government bonds were in negative territory all year long and finished the year down about -7%. The only real bonds which were positive for 2021 were high-yield corporate bonds, formerly known as "junk bonds" (and for a reason). They were up about 4% last year. Can you imagine holding something called “Junk” and only making 4% on it with inflation raging the way it has been?
We also want to look at ideas which many thought were somewhat of a sure bet or a great idea early in 2021 but which turned out not to be great places to invest money for the full year.
One of the first of those is clean energy. There seemed to be a renewed interest in using clean energy to accomplish lots of mechanical tasks as 2021 opened up.
Though most any would be in favor of things being clean it seems that in 2021, the investable idea of clean energy seems it may have gone the way of the dodo bird in terms of being beneficial to investors. So, "Yes", to clean energy but 2021 said "No" to it being a good idea as an investment - down by -30%.
With inflation climbing to a 40-year high during 2021, probably the most common question I was asked last year was this. “So if inflation is going up why aren't you buying a lot of gold or silver?” Many people believe that gold is the ultimate hedge against inflation and there are times when gold has acted in that manner but it's not a given at all.
This is one of the reasons that many common investing myths are simply nothing more than folklore, they just don't turn out to be true. As you can see in the chart above, for 2021 gold, silver and platinum just didn't seem to show their shine to investors last year.
We remain watchful!
Ken Graves, Chief Investment Officer
Capital Research Advisors, LLC
CaptialResearchAdvisors.com
Capital Research Advisors, LLC,
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