When 2021 began, no one knew what to expect from the markets and the economy. There was hope for a return to normalcy after the chaos of 2020, but ultimately, the pandemic continued to complicate things all year long.
2021 was unique because, despite the continuing challenges, the markets performed quite well overall. But at an economic level, many people still felt the stress of a relentless pandemic and record inflation.
2020 was, unsurprisingly, a volatile year for the markets, but they were recovering as 2021 began. As vaccines rolled out, consumer confidence grew, and people continued to spend. By the end of 2021, gross domestic product grew, marking a period of expansion. The S&P 500 closed out the year with a nearly 27 percent gain.
There was also a significant focus on cryptocurrency and “meme stocks,” which exploded because of social media and online attention.
But the markets only tell one small part of the story, because economically, things were a bit more complicated.
The 2021 economy reflected the many highs and lows of the year. As vaccines were distributed and lockdowns lifted, many people were able to get back to work and resume life as usual. However, there were still lingering effects from the pandemic, like labor shortages, supply chain disruptions and rising inflation.
Then, as new variants emerged, there was a renewed sense of fear and uncertainty, and many industries continued to struggle with a strained and limited workforce.
For Americans, 2022 is poised to be another year of high spending and demand. Supply chain shortages and disruptions have led to high demand for many industries. After stimulus checks and other measures to keep money moving, people and businesses generally have funds to spare.
2021 ended on a mostly high note for both the markets and the economy overall, and in 2022, that trend looks like it could continue. But there might be trouble on the horizon.
The inflation rate is becoming more concerning to the Fed, and it plans to raise interest rates this year with the hopes of slowing inflation down. If inflation continues to rise and wages don’t keep up, we could run into a recession.
With that in mind, plan for the long term and avoid reacting too quickly in your investments. Try to focus instead on creating a well-balanced portfolio that is designed to take the hit of economic and market volatility, and you’re likelier to set yourself up for success.
Do you need help planning for your financial future? Contact me today to set up a meeting to talk about your goals.