Exploring 2021's Major Stock Market Trends with Schaeffer's Investment Research

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With the Consumer Price Index rising to 6.8%, the world is experiencing an inflation high unseen since 1982. 

“Inflation surprises, supply shortages, and rotation are what come to mind when I think about 2021,” Matthew Timpane of Schaeffer’s Investment Research said. “But unlike the 1980s, part of the inflation, probably more so, was due to supply-chain shortages than risk-taking due to easing monetary policies. 

“The pandemic basically created an everything shortage from employees, food, consumer goods, semiconductors and more.” 

This shortage, along with the general effects of the pandemic, created a concoction of stock market movements that benefited some and cracked down on others. Socially-reliant industries such as airlines, hotels, restaurants, and casinos were particularly hard hit. Boeing Co. BA, for example, dropped from a high of $350 per share on Feb. 12, 2020, to a low of $89 per share on March 18, 2020, and Hilton Grand Vacations Inc. HGV fell from $32.50 per share to $8.28 per share in the same period. 

Conversely, stocks that helped people when they were ordered to stay at home — think Zoom Video Communications Inc. ZM, Netflix Inc. NFLX, and Roku Inc. ROKU  — saw their valuations skyrocket in the same period. As these companies reaped the benefits of their products and services, a global supply chain crisis continued to provide issues to stocks that were already unlucky. 

As people were vaccinated and contaminations were curtailed, the pandemic facilitated the onset of yet another unprecedented development with the rise of special-purpose acquisition companies (SPACs). Eager to raise funds in a pandemic-stricken world, entrepreneurs flocked to this revitalized method of taking companies public. Between Jan. 1, 2020, until now,  more than 800 SPACs have undergone initial public offerings (IPOs). In comparison, one SPAC with a valuation of $36 million underwent an IPO in 2009.

The onset of SPACs contributed to the shift in interest from value to growth stocks. The zeal attached to growth stocks is perhaps best personified in the market capitalization of Rivian Automotive Inc. RIVN, which temporarily was valued more than Tesla Inc. TSLA despite not having any sales. The booms and busts of growth stocks caused a constant rotation between typical value stocks like Berkshire Hathaway Inc. BKR and Morgan Stanely MS and more exciting alternatives.

“It’s been years since we’ve seen this type of rotation amongst stocks, and if you’ve only started investing or trading recently, you most likely were caught off guard as growth had been the main focus since coming out of the 2015-2016 sideways correction we experienced the last time the Fed started tightening monetary policy,” Timpane wrote. 

A Few Unexpected Trends From 2021

“There were a couple of unexpected trends that occurred in 2021, but it was more about what didn’t work than did work,” Timpane continued.

“First, gold did not work as an inflation hedge as many expected, and it is currently down 5.45% YTD (year-to-date). To properly hedge, you really needed to move towards TIPS (treasury inflation-protected securities) or inflation-related stocks like real estate as that sector is up around 40%. 

What worked in 2020 — stocks in companies that help people work from home, fintech stocks, and online retail stocks — really struggled in 2021. So, while technology may have moved ahead in the timeline, there still is a craving for humans to be social, as evidenced by mall real estate investment trusts (REITs) like Simon Property Group being up 85% YTD. Maybe this is a precursor to seeing airlines and cruise lines bounce back if COVID is under control as they have lagged compared to restaurants, retailers, and even lodging and hotel stocks.

Chinese stocks also took a beating in 2021. Most were expecting relations between China and the U.S. to improve under President Joe Biden, but the new administration continued the tough stance against China, and Xi Jinping has made concerted efforts through regulation to keep the U.S. out of its business with a recent example of the Didi Chuxing Technology Co. delisting. 

You can’t talk about 2021 without talking about the non-fungible token (NFT) craze that has come about. Art has been a great way to protect assets against inflation in the past, and apparently, investors in 2021 thought digital art might be even better as Web3 inches closer to reality.

For more information on the latest trends and what to expect in 2022, visit Schaeffer’s Investment Research website. 

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.