Markets 2021: Stocks Rise, IPOs Explode, Crypto Goes Wild

On July 8, a Wall Street sign hangs in front of the New York Stock Exchange.
(AP file photo/Mark Lennihan)

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

As of December 22, the S&P 500 was up 25%, its third consecutive annual gain. Meanwhile, the benchmark index hit 67 all-time highs.

The market has endured a number of challenges along the way. Skyrocketing inflation, global supply chain disruptions and a global economy still vulnerable to the uncertainty posed by the COVID-19 pandemic created market volatility, especially towards the end of the year.

Wall Street got a boost from the Federal Reserve, which kept its key short-term interest rate close to zero all year. As a result, corporate borrowing costs remained low and equity valuations high. However, investors expect the Fed to raise interest rates in 2022.

Inflation is getting sticky

Inflation woke from a long sleep in 2021. The US government’s consumer price index shot up 6.8% in the 12 months ended November — the strongest such jump since 1982. Wholesale prices rose even more. Many companies have raised prices to offset higher input costs and keep profit margins stable. Consumers are paying more for everything from diapers and laundry detergent to cereal and home appliances. It is unclear when exactly the supply bottlenecks will decrease, so further price increases may be on the horizon before 2022.

Investors pile on ‘meme stocks’

Small investors piled up on stocks in 2021, sometimes congregating on online forums like Reddit’s WallStreetBets to spark a frenzy over certain companies like GameStop. The financially struggling video game retailer rose more than 1,600% in January. The mania led to huge losses for some hedge funds, multiple trading freezes, and congressional hearings asking who was injured. The rise of retail investors is one of the reasons why stocks accounted for a quarter of household wealth in the third quarter, according to Wells Fargo Securities, up from just 13% a decade ago.

tied returns

Bond prices fell and their yields rose in turn in 2021, but not as much as you might expect with a growing economy and rising inflation. Yet yields remain low compared to history. For example, the yield on the 10-year Treasury is still below the level of the spring. That could be a product of expectations that inflation will eventually fall and that the economy will also moderate its growth. Low bond yields are one of the main reasons stock prices have risen so high: With bonds paying so little, there is a widespread belief on Wall Street that there is no alternative to buying stocks.

battery power

Electric vehicle sales have nearly doubled worldwide as automakers introduced new models. Many consumers bought EVs to avoid oil burn, but others went for the fast acceleration and sharp handling. Shares of Tesla, the world leader in EVs, were up more than 40% on December 22. The industry’s old guard has revived its dedication to EVs – General Motors, for example, is planning a GMC Hummer EV. While EVs will account for just 5.8% of global new vehicle sales by 2021, that figure could grow by nearly 15% by 2025, says research firm LMC Automotive.

Got chips?

A global chip shortage impacted much of the economy in 2021, styling consumers who were delayed in getting new cars, video game consoles and a range of other products. The shortage originated with the outbreak of the COVID-19 pandemic, starting with the closures of Asian semiconductor factories in early 2020. With 2022 approaching, some analysts are now concerned about what will happen if shortages diminish and an oversupply of chips affects prices. .

Crypto is going mainstream

Cryptocurrency prices have gone on another rollercoaster over the past year: rising, diving, and then cycling again. What made 2021 different was how much more people experienced those swings, as crypto hit the mainstream. In the most famous example, El Salvador became the first country to make Bitcoin legal tender. Perhaps more impactful to the financial markets, the first exchange-traded fund linked to Bitcoin futures also started trading.

Chinese tech crackdown

Fearful investors knocked over $1 trillion of the value of high-flying Chinese tech companies on foreign exchanges after the ruling Communist Party tightened control over their industries. Alibaba Group, the world’s largest e-commerce company by sales volume, was fined $2.8 billion on charges of suppressing competition. Tencent Holdings, operator of the popular messaging service WeChat, has been ordered to end exclusive contracts with music suppliers. Regulators criticized Didi Global Inc., China’s dominant taxi service, for handling customer data.

Went to the market

IPOs exploded in 2021 as companies tried to take advantage of a rising stock market. There were 389 IPOs through the first week of December, easily surpassing the total of 221 for all of 2020, according to Renaissance Capital. Among the more notable IPOs were online broker Robinhood, dating app Bumble and electric vehicle manufacturer Rivian Automotive. It has also been a hit year for special acquisition companies, or SPACs, which raise money from public investors with the intention of later buying a private company. However, SPACs are more closely monitored by regulators.

energy crisis

Rising oil and natural gas prices confused the global economic recovery in 2021. The biggest crisis occurred in Europe, where natural gas prices were more than nine times higher in December than at the start of the year, fearing that reserves would run out in a colder-than-average winter. President Joe Biden tried to pressure OPEC to ramp up production and tried to tap into his country’s emergency supplies of oil in a bid to lower gasoline prices for American drivers. Oil and petrol prices did fall, but mainly because of fears of another possible economic slowdown due to the ongoing coronavirus pandemic.

Reality and the Metaverse

The debate over social media’s impact on the public exploded when Facebook whistleblower Frances Haugen leaked tens of thousands of damning internal documents about the damage the company is inflicting on its users around the world. Amid the fallout, Facebook has rebranded itself as Meta Platforms, a reflection of its dedication to developing the metaverse. CEO Mark Zuckerberg described the metaverse as a “virtual environment” where you can go inside — instead of just looking at a screen. Meta’s stock price and sales have weathered the turmoil thus far.