Opinion: Goodbye a wild 2021, and welcome to a more normal 2022

Well 2021 is over and now we can expect 2022 to be hopefully very boring… or maybe not if you’re the stock market.

Uprising on Capitol Hill in Washington, New President, Former Federal Reserve Chairman, New COVID Variant, Archegos, Really Interesting Bond Auctions, Resilient Labor Market, Rising Inflation, Crypto Prices soaring, constant chatter from a tapering central bank, falling crypto prices, geopolitical tensions, Ray Dalio not helping, another one COVID variant, the deaths of “Screech”, Larry King, Colin Powell and Betty White, gas prices go monkeys, Elon Musk looking even more like “Elon Musk”, the Turkish lira decreasing becoming real, and – of course. – stocks of memes.

Through all of the madness of 2021 we laughed and cried and the stock market went up and up.

The Dow Jones Industrial Average DJIA,
gained 18.7% on the year, while the S&P 500 rose 26.9% and the tech-rich Nasdaq added 21.4%.

In fact, if you were to sum up the year 2021 as an emotion, it would look like this:

But to investors, the year looked more like this:

So what about 2022, or – as some now call it – Monday?

The most popular sentiment this week is that 2022 will be a relative return to normal after the pandemic and political maelstroms of the past two years.

“As hiring continues, spending increases, and businesses hire and invest, the economy will be normal,” wrote Brad McMillan, chief investment officer for Commonwealth Financial Network. “The government is standardizing policy on the same expectations. When you look at the macro image the general theme is 2022 which will take us back to something like normal. “

For many, this return to normal will be a relief, even with a reduction in bond purchases and three likely interest rate hikes by the Federal Reserve and 40-year high inflation that may now be more difficult to manage. control.

In this scenario, market “norms” would mean a return to fundamentals, examining data such as job and wage growth and corporate profits without having to factor in a global pandemic or a capricious Capitol Hill. .

After a few years of wild valuations and an almost religious belief in economic growth and earnings, investors might use a normal 2022 to re-evaluate their feelings towards the rockets of 2021: Tesla Inc. TSLA,
Microsoft Corp. MSFT,
and Apple Inc. AAPL,
and are looking to turn into names they might be surprised to see in bear markets, like Alaska Air Group Inc. ALK,
+ 0.31%,
Southwest Airlines LUV,
+ 0.28%
and – perhaps surprisingly – Walt Disney Co. DIS,
which ended the year down 23% from its 2021 high point in early March.

A return to normalcy will also allow many investors to stop worrying so much about meme stock names like GameStop GME,
and AMC Entertainment AMC,
which tended to dominate popular discussions around equities in 2021, thanks to a group of cheeky and motivated ‘monkeys’ on social media platforms who became a guerrilla force in the less guarded corners of the market.

While the action around equities meme has cooled since the short, chaotic cutbacks in January, the resentment left behind has not been and the monkeys on social media remain determined to see hedge funds plummet and structure. of the market shift to rebalance what they see as a game that has become too blatantly rigged against the little guy.

This could lead to changes in market practices, such as the payment of order flows, but it will also more likely lead to a new generation of self-taught investors who will roll out across the market to impact a variety of markets. names and sectors as the market rebalances itself into the new boredom of the new normal.

To see the effects of tightening fiscal and monetary policy on memes stocks, one will have to look no further than the options market,

“Excluding index options, meme stocks accounted for 21.4% of total options volume in 2020 and declined to 10.1% in 2021,” reads a report from a December report. by Cboe Global Markets. “The overall volume of options in meme stocks has declined from 2020 to 2021, but there are still a number of days when these stocks represent over 25% of the total volume of options.”

This in turn can cause problems for Robinhood Markets Inc. HOOD,
whose stock ended its first year as a listed company down nearly 49%.

But overall, a more normal, less volatile environment in 2022 will just be a lot less fun.

According to Dow Jones data, when the S&P 500 gains 20% or more in a calendar year, it averages a 7.7% gain the following year with a median return of 10.2%.

According to our theme, it would look like this:

Dow jones

It’s not nothing, but it’s definitely a lot more “normal”.

See you on Monday, when things are less fun and money starts to seem less cheap.

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