Calendar year 2021 is finally in the books and when all the dust settled, from January 1, 2021, to December 31, 2021, the S&P 500 was up 22.8%, the NASDAQ was up 26.9% and the Dow rose 19.5%.
This puts all of the indexes I just named at or near all-time highs.
The good news is that I expect a higher market to kick off 2022 because virtually all the current stock market fears are expected to diminish in January.
Let’s take a closer look at four key reasons why:
Reason #1: Growth is returning and will be reported in late January. The Atlanta Fed is currently estimating 7.2% fourth-quarter GDP growth. Also, crude oil prices are now moderating, and Treasury bond yields have meandered lower. On top of that, Omicron virus fears should abate soon.
Reason #2: Regarding the supply chain issues and port bottlenecks, major European ports, like Hamburg and Rotterdam, are “roughly flat or lag behind 2019 levels,” according to The Wall Street Journal, while the major U.S. ports are processing almost 20% more container volume than they did in 2019. The bottom line is that U.S. consumers continue to boost their spending on goods, while European consumers remain much more cautious.
Reason #3: According to the Bank of England, the U.S. accounts for almost 90% of a 22% worldwide surge in durable goods orders since the end of 2019. Overall U.S. GDP growth is forecasted to grow at a nearly 6% annual pace in 2021 and 4% in 2022. The primary reason that the U.S. dollar is strong is due to this higher GDP growth as well as higher absolute interest rates than anything offered in Europe or Japan.
Reason #4: A strong U.S. dollar will eventually help suppress inflationary pressure since almost all commodities are priced in U.S. dollars. Furthermore, since approximately half of the sales in the S&P 500 are outside of the U.S., many multinational companies will be posting better-than-expected sales due to a “currency tailwind.” As a result, it is hard to not be optimistic about 2022, since the U.S. is driving global growth.
And that’s not all. The economic news we’re hearing right now is mostly encouraging as 2022 gets underway.
Encouraging Economic Reports
In the past several weeks, we’ve seen a number of encouraging economic reports.
First, the Conference Board announced that its consumer confidence index surged to 115.8 in December, up sharply from a revised 111.9 in November. Most notably, the Expectations component surged to 96.9 in December, up from 90.2 in November. Obviously, this bodes well for the outlook for the New Year
The National Association of Realtors reported that existing home sales rose 1.9% in November to an annual pace of 6.46 million. Although absolute home sales were down 2% compared to October, year-to-date existing home sales have risen 10%. The inventory of existing homes for sale in November declined 9.8% from October to only 1.11 million, which represents a 2.1-month supply at the current sales pace. In the past 12 months, median home prices have risen 13.9% to $353,900.
The Labor Department reported on Thursday that unemployment claims in the latest week were 205,000, which was identical to a revised 205,000 in the previous week. Continuing unemployment claims in the latest week declined to 1.859 million compared to a revised 1.867 million in the latest week. Overall, the four-week average of unemployment claims remains near the lowest level in 52 years, so in my opinion, the Fed has fulfilled its unemployment mandate
The Commerce Department’s most recent report showed that durable goods orders surged 2.5% in November, which was substantially higher than the economists’ consensus estimate of a 0.7% increase. A 34% surge in commercial aircraft orders was the primary cause of the big increase. Also encouraging was the fact that orders for vehicles rose 1% last month. Excluding transportation, durable goods orders rose 0.8%
The only “glitch” in the durable goods report was that business orders declined 0.1% after rising 0.9% in October. Perhaps businesses were more cautious since inventories rose 0.6% in November. However, unfilled orders for manufactured goods rose 0.7%, which bodes well for continued strong durable goods orders in future months. As a result, I expect economists to upgrade their fourt- quarter GDP estimates.
We’ve Been Here Before
You may not know this, but Navellier & Associates was actually founded in 1987. It was during this time of fear and market volatility that I launched my firm and doubled down on my commitment to help individual investors no matter what the market threw at us.
In the 30+ years since then, we have guided our clients through every market boom and correction.
So, given that the indices are at all-time highs and that there are still bright spots in the economy, is now the time to be fully invested in the market?
The answer will be different for every investor reading this important message.
But I will tell you this…
There is an old saying that goes, “The best time to plant a seed was 20 years ago. The second-best time to plant a seed is today.” Investing is no different as you’ll be better off if you start investing earlier (and stay invested).
Having more time on your side and not selling during crashes can mean the difference between thriving or surviving during retirement. It’s also important to stick with your investing plan and stay present.
Staying present can be tough since it can be easy to fantasize about potential past gains. However, the most practical approach is to realize that it’s time to act. Time to live in the present. Time to seize the moment and pick up high growth investments at “bargain prices.”
How Struggle Can Lead To Success
Let’s face it… 2021 was a very unique year. Life is starting to normalize after a traumatizing COVID-19 pandemic.
But, we aren’t out of the woods yet…
One main issue that is plaguing world economies is supply chain issues. These have caused major delays, leading to shortages.
These delays have been caused by higher freight prices, demand, and port congestion—which as I mentioned is only now unwinding.
You might think that this will hurt the overall world economy. You might also be thinking of avoiding investing in supply chain-based companies.
Well, guess again…
With struggle comes growth. One example of this is greater innovation in the supply chain space.
More technology, including supply chain-focused cryptocurrencies and other systems, is being created to improve workflows.
This is just one struggling industry that has the potential to offer high growth, undervalued investments.
Before diving deep into one specific industry, we recommend that you…
Approach Your Portfolio At A Bird’s Eye View
Consider starting at a bird’s eye view. Are you a conservative investor looking for income? Or are you looking for growth-based opportunities? Are you in need of a defensive or capital preservation strategy? Maybe something in between?
There is no right answer, it simply boils down to your financial goals and risk tolerance.
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