Same again, please
US stock markets (S&P 500 index) closed out 2021 with a total return of 29% — adding another green bar to the long history of US stock market appreciation.
That means that for the last 3 years US stock markets have gained — on average — 26% a year, and two of those years were during a global pandemic. It also means that it is the best 3-year stretch since 1997-1999.
The gains made in equity markets last year were spurred on by the same forces at play in 2020; supportive monetary policy, significant fiscal stimulus from governments and the relentless upward march of big tech. Indeed, just a few of the FAATMAN group of stocks — Facebook, Apple, Amazon, Tesla, Microsoft, Alphabet and Nvidia (sorry Netflix) — now account for somewhere between 25-30% of the entire S&P 500 index, depending on the day. Apple alone is almost 7%.
How long can the party last?
The most worrying indicator that could stop the music is inflation — which has returned in pretty much every market in the world, to varying extents. To combat inflation central banks are almost certainly going to raise interest rates. Will stocks hold onto their gains if interest rates finally move from historic lows? We wish we knew.
