Gideon here, bringing things back to the end of 2021 for a minute. Here's what happened and here's what we have looking forward into 2022.
The 4th quarter of 2021 in a word – Omicron, well a name really. From October 2021 to the end of December 2021 we witnessed the discovery and precipitous spread of the Omicron variant of Covid-19. While new variants of the virus are to be expected, news of a named variant by the WHO will always create political, social, and economic uncertainty.
Despite the emergence of Omicron, 2021 saw strong stock market results. The S&P 500 Index returned 28.71%, and the MSCI Index of non-U.S. stocks was up 11.26%. Bonds were less successful as interest rates rose during the year. The Bloomberg Barclays Capital Aggregate Bond Index was down 1.54% for the year.
Here's what we are optimistic about going into 2022:
Initial indications show Omicron is less severe than Delta. The percentage of vaccinated (and boosted) individuals continues to increase. We are also looking forward to a vaccine approval later this year for children under age 5.
Supply chain pressures are likely to persist in 2022. We are hoping for improvements as we approach the summer months, but the virus and its downstream effects are in control.
The unemployment rate at 3.9% is hovering around an all time low. This is crucial because 70% of the U.S. economy is based on consumer spending and consumer spending is strongest when the unemployment rate is low.
We are seeing meaningful wage growth (the Atlanta Fed even has a fun interactive chart!) specifically for low income earners. We see no downsides to wage growth for this group as it has shown to have little to no effect on inflationary pressures.
Companies have proven once again that their revenues are resilient to pandemic pressures and we expect more of the same moving forward.
Here's what we are cautious about going into 2022:
The pandemic is still largely in control of the economy.
While unemployment numbers are low the US economy has lost ~4.2 million jobs since February 2020. Many who have left the workforce are mothers. There is still a long recovery road ahead and this recovery (like previous recoveries) appears to be unequal across racial, gender, and geographical divides.
Domestic inflation is tracking above the Federal Reserve’s target of 2% due to the increased demand in goods and supply chain bottlenecks.
We’re expecting to see some market volatility associated with the Federal Reserve's monetary policy changes. We are anticipating 3 interest rate hikes in 2022 as well as the Fed pulling back on its asset buying program.
We do not expect to see the end of the pandemic in 2022. However, we do expect robust ways of coping and living with it. Cheers to a solid year ahead!