The strong economic recovery that began after the hard lockdowns of early 2020 ended continued in 2021.
The unprecedented fiscal and monetary support that was rapidly applied early in the pandemic was added to with December 2020’s $900 billion and March 2021’s $1.9 trillion fiscal packages. This, coupled with the vaccine rollout, helped surging economic activity produce better-than-expected profit growth throughout 2021. This led the S&P 500 stock index to 70 record highs in 2021 and a final gain for the year of 29%. The healthy economic readings also led to underperformance from high-quality bonds with the Barclays Bond Aggregate Index losing 1.5% for the year.
While the virus remains a near-term headwind, we begin 2022 with significant momentum and a favorable outlook for economic growth and financial markets. The U.S. economy should remain supported by low interest rates, a healthy consumer with pent-up demand, and improving business and consumer optimism as the pandemic fades. Record corporate profits should support future corporate capital spending, while the labor market is healthy with job openings hovering near record highs. In addition, the global backdrop should continue improving as the pandemic fades, supported by vaccine and therapeutic rollouts, and global stimulus.
We continue emphasizing the importance of sticking to long-term investment goals and maintaining a well-diversified portfolio that includes exposure to bonds, in addition to stocks and other risk assets.