2021- Another Incredible Year for U.S. Equities; 2022 Forecasts
By the Curmudgeon with Victor Sperandeo
2021 Market Year in Review:
The S&P 500 rose +26.9% in price in 2021, while dividends boosted its total return to +28.7% for the year. Pretty good considering money market funds and savings accounts earned <0.1% and bond funds had a negative total return in 2021!
It is the third straight year of double-digit gains for the broad index, and the second amid the Covid-19 pandemic. Here are other highlights:
As of 12/30/2021 the NASDAQ-100 Index (dominated by the big tech names) was up +48.88% for 2021, +196.31% for 5 years and + 552.24% for 10 years.
The combined market values of Apple, Microsoft, Google-parent Alphabet Inc., Amazon, and Meta Platforms—the company once known as Facebook stand at $10.1 trillion as of Wednesday’s close. That’s up from $7.5 trillion at the start of the year, reflecting a 35% rise that exceeds the gains of the Dow, S&P 500, and Nasdaq Composite in what has been yet another strong year where stocks prices increased more than earnings.
As a result of the big tech stock price run up, a larger portion of the market is under the sway of just a few big names. The five aforementioned—along with Tesla and chip maker Nvidia — now comprise more than 27% of the S&P 500’s total value. And that seems likely to grow even further. Apple alone is on the cusp of reaching the $3 trillion mark, and at least 13 market analysts have price targets on the stock that would put the company’s market value well past that milestone. And Wall Street’s median price target of $4,000 for Amazon’s shares would put the e-commerce giant past the $2 trillion mark—up 17% from its current value.
Warning Signs Flashing (as they have been for years):
Inflation could turn companies’ and customers’ finances upside down. Many companies that have been market darlings are losing money. Big-name stocks continue to log giant one-day swings. However, individual traders and institutional investors are hungry to take bigger risks and willing to accept bouts of volatility.
“When you see your friends making a ton of money in the market, everyone jumps in,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management.
“We’ve never seen anything like that in history,” said Dean Curnutt, chief executive of brokerage Macro Risk Advisors, referring to the volatility in some single stocks. “The up crashes have been gigantic.”
Figures from Macro Risk Advisors show that stocks such as GameStop, AMC, Tesla and Nvidia Corp. were more volatile on days the shares were rising than when they were falling, upending the market’s typical dynamics.
“Who said it was escalator up, elevator down for stocks?” wrote Mr. Curnutt in a note to clients.
These moves lured many investors, both institutional and individual, into options, a shift that can make the market vulnerable to bigger swings, some traders have said. Trading activity in options, which give traders the right to buy or sell stocks at a specific price by a stated date, hit the highest level in the industry’s history in data going back to 1973. That’s yet another sign of extreme speculation.
2021 (and the previous 12 years) showed the Fed in its full corrupt form and glory. The U.S. is nothing like the laws that our founding fathers designed – the U.S. Constitution.
The creation of the Federal Reserve Act of 1913 was a sham, or a cover for the bankers from the very beginning [see “The Creature from Jekyll Island,” by G. Edward Griffin for the real history of the Federal Reserve Act.]
–> Mises was 100% correct! He predicted everything we now witness today with fiat money (e.g., “the everything bubble,” widening income inequality, etc.). Sadly, the undisciplined control of money supply growth is likely to end the liberty that created the greatest nation in world history.
In my opinion, we are now nearing the end of the U.S. government’s ability to “kick the can down the road” (e.g., Congress’ vote to raise the debt ceiling, while the Fed continues to monetize1 most of the newly issued U.S. Treasury debt since March 2020).
Note 1. As a result of the latest round of QE, the Fed’s balance sheet increased from about $7.4 trillion at the end of 2020 to nearly $8.5 trillion as of September 29, 2021 (last date available). It’s surely over $9 billion today.
The U.S. official debt has grown, since going off the gold standard, to an incredible $29.494 trillion (as of 12/29/21) - from $398 billion from 6/30/71. That is an 8.72% compounded rate. This does not include Off Budget debt at about $11 trillion or Unfunded Liabilities estimated as high as $ 200 trillion. In 10 years at the 51.5-year trend, the official debt will be $68.050 trillion! This seems impossible but it’s what the math suggests.
The Fed has turned the Wizard’s Wand of printing money (aka “key stroke entries”) into the visible end of America by abusing its power.
The words of Rep. Louis T. McFadden - a powerful House Member – ring loud and clear today:
“Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. The depredations and iniquities of the Federal Reserve Board has cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States, has bankrupted itself, and has practically bankrupted our government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it.”
“The Federal Reserve Bank of New York is eager to enter into close relationship with the Bank for International Settlements....The conclusion is impossible to escape that the State and Treasury Departments are willing to pool the banking system of Europe and America, setting up a world financial power independent of and above the Government of the United States....The United States under present conditions will be transformed from the most active of manufacturing nations into a consuming and importing nation with a balance of trade against it.”
→ That’s exactly what happened! Indeed, McFadden2 was a true soothsayer.
Note 2. The McFadden Act of 1927 rechartered the Federal Reserve Banks in perpetuity, liberalized branch banking rules, and revised a wide range of laws related to the treatment of banks that were not members of the Federal Reserve System.
The world we live in today and what will happen to the U.S. is a mixture of the Welfare State, Corporativism, and Fascism! For sure, it’s not capitalism.
Readers are encouraged to review these Curmudgeon blog posts where I explain my views in detail:
Rather than end my polemic discourse on a gloomy note, please consider the following 2022 New Year's resolutions, courtesy of Mike Luckovich, The Atlanta Journal-Constitution:
Victor’s 2022 Forecasts:
Money supply growth is the key to the markets – not interest rates. The Fed has given guidance via talk about reducing their U.S. government bond and mortgage debt purchases, with all purchases ending in March 2022.
“If nothing changes, nothing changes. If you keep doing what you're doing, you're going to keep getting what you're getting. You want change, make some.”
Happy New Year! Stay healthy, enjoy life, success, good luck and all the best for 2022...
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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