Markets 2021: Stocks Soar, IPOs Explode, Crypto Unleashes

A sign that reads Wall Street hangs outside the New York Stock Exchange on July 8.
(AP File Photo / Mark Lennihan)

Wall Street had another strong year for investors in 2021, as a resurgence in consumer demand fueled by the reopening of the global economy boosted corporate profits.

As of December 22, the S&P 500 had risen 25%, its third consecutive annual increase. Along the way, the benchmark has reached 67 all-time highs.

The market has overcome a number of challenges along the way. Soaring inflation, disruptions to the global supply chain and a global economy still vulnerable to the uncertainty created by the COVID-19 pandemic have fueled market volatility, particularly towards the end of the year. ‘year.

Wall Street got a boost from the Federal Reserve, which kept its short-term policy rate close to zero throughout the year. This has helped keep corporate borrowing costs low and equity valuations high. However, investors expect the Fed to start raising rates in 2022.

Inflation is getting sticky

Inflation woke up from a long slumber in 2021. The US government’s consumer price index soared 6.8% in the 12 months ending in November, the jump on largest since 1982. Wholesale prices have increased further. Many companies have increased their prices to offset rising input costs and maintain stable profit margins. Consumers pay more for everything from diapers and detergents to grains and home appliances. It’s unclear when the supply bottlenecks will ease, so further price increases could be expected for 2022.

Investors cram into stocks even

Small investors have crammed into stocks in 2021, sometimes grouping together on online forums like Reddit’s WallStreetBets to stoke a frenzy against some companies like GameStop. The financially troubled video game retailer jumped more than 1,600% in January. The mania resulted in heavy losses for some hedge funds, multiple trading stops and Congressional hearings asking who was injured. The rise of small investors is one reason stocks made up a quarter of household assets in the third quarter, down from just 13% a decade ago, according to Wells Fargo Securities.

Bond yields

Bond prices have fallen and, in turn, their yields have risen in 2021, but not as much as one would expect with the economy growing and inflation surging. Still, returns remain low compared to history. The 10-year Treasury yield, for example, is still lower than it was in the spring. This could be the result of expectations of lower inflation and slower growth in the economy. Low bond yields have been one of the main reasons stock prices have soared so high: With bonds paying so little, there is a widespread belief on Wall Street that there is no alternative to the purchase of shares.

Battery powers

Sales of electric vehicles have nearly doubled around the world as automakers launched new models. Many consumers bought electric vehicles to avoid burning oil, but others opted for quick acceleration and precise handling. Shares of Tesla, the world leader in electric vehicles, have jumped more than 40% as of December 22. The old guard of the industry has strengthened its commitment to electric vehicles, for example General Motors is planning a GMC Hummer EV. Although electric vehicles will only represent 5.8% of global new vehicle sales in 2021, this figure could increase by nearly 15% in 2025, according to research firm LMC Automotive.

Do you have crisps?

A global chip shortage has impacted much of the economy in 2021, thwarting consumers facing delays in obtaining new cars, video game consoles and a range of other products. The shortage has its roots in the outbreak of the COVID-19 pandemic, starting with the shutdowns of Asian semiconductor factories in early 2020. As 2022 approaches, some analysts are now worried about what happens when shortages ease and an oversupply of chips affects prices. .

Crypto goes mainstream

Cryptocurrency prices experienced another roller coaster last year: blazing, diving, then cycling again. What made 2021 different was the number of additional people who experienced these fluctuations, as crypto entered the mainstream. In the most famous example, El Salvador became the first country to make Bitcoin legal tender. Perhaps more impacting on financial markets, the first exchange-traded fund linked to Bitcoin futures contracts has also started trading.

Technological repression in China

Concerned investors slashed the value of China’s top-flight tech companies on foreign stock exchanges by more than $ 1,000 billion after the ruling Communist Party tightened control over their industries. Alibaba Group, the world’s largest e-commerce company by sales volume, has been fined $ 2.8 billion for suppressing competition. Tencent Holdings, operator of the popular WeChat messaging service, has been ordered to end exclusive contracts with music providers. Regulators have criticized Didi Global Inc., China’s dominant ridesharing service, for its handling of customer data.

Gone to the market

Initial public offerings exploded in 2021 as companies sought to profit from a booming stock market. There were 389 IPOs in the first week of December, easily surpassing the total of 221 for all of 2020, according to Renaissance Capital. Among the most notable IPOs were online broker Robinhood, dating app Bumble and electric vehicle maker Rivian Automotive. It was also a banner year for Special Purpose Acquisition Companies, or SPACs, which raise funds from public investors with the intention of buying a private company later. However, SPACs have come under more rigorous scrutiny from regulators.

Energy crisis

Rising oil and natural gas prices disrupted the global economic recovery in 2021. The biggest crisis occurred in Europe, where, in December, natural gas prices had climbed more than nine times their level. start of the year due to fears of depletion of reserves in 2021. a colder than average winter. President Joe Biden has tried to pressure OPEC to increase production and tap his country’s emergency oil stocks in a bid to lower gas prices for American drivers. Oil and gasoline prices have fallen, but mainly on fears of another possible economic downturn from the ongoing coronavirus pandemic.

Reality and the metaverse

Debate over the impact of social media on the public exploded when Facebook whistleblower Frances Haugen disclosed tens of thousands of damning internal documents about the damage the company is doing to its users around the world. Amid the fallout, Facebook rebranded itself as Meta Platforms, reflecting its commitment to growing the metaverse. CEO Mark Zuckerberg described the Metaverse as a “virtual environment” that you can step into instead of just staring at a screen. Meta’s share price and earnings have so far weathered the storm.