2021 will go down in history as a year of extremes. We witnessed millions more people become sick or perish from the coronavirus while some of the most developed nations recorded a broad-based economic recovery. However, the K-shaped recovery has not been felt by people equally, across all income levels in the U.S. and other countries.
The economic recovery has also brought historic spikes in producer and consumer prices, vast labor shortages across industries, and a global supply chain clog that still persists today. The impacts of climate change arrived at our doorsteps, as wildfires, floods, hurricanes, and tornadoes devastated communities, local economies, and large swaths of land.
An influx of new traders and investors entered the capital markets this year, and have been particularly keen on cryptocurrency. The market cap of all cryptocurrencies topped $3 trillion in 2021, as Bitcoin and Ethereum soared to record highs, but experienced intense volatility. So-called meme-coins, including Dogecoin and Shiba Inu, became mainstream as they racked up astronomical gains, spurred on by business celebrities such as Elon Musk and online trading forums like r/wallstreetbets.
Indeed, 2021 was the year retail traders tilted the playing field against traditional Wall Street institutions. Day-trading enthusiasts swarmed stocks targeted by institutional short sellers and hedge funds, driving stocks like AMC Entertainment (AMC) and GameStop (GME) to extreme highs, prompting short squeezes and hundreds of millions of dollars in losses for legacy institutions. That led to more stock market scrutiny and calls for more online broker oversight.
This year will also be remembered for the persistent strength of the capital markets, despite economic uncertainty, the ongoing pandemic, and a sense of frothiness across many asset classes. The S&P 500 closed at record highs more than 67 times this year, although hundreds of stocks fell into bear markets along the way. Meanwhile, several of the biggest stocks got bigger as Tesla (TSLA) joined the Trillion Dollar Market Cap Club and Apple (AAPL) danced dangerously close to the $3 trillion apex.
All that said, it’s not a surprise that the U.S. equity markets outperformed all developed global markets for the fourth year in a row. Many point to the ultra-accommodative monetary policies extended by the Federal Reserve, which has kept interest rates near zero and sustained its low-yield monthly government bond-buying program, fueling the stock market’s fire.
Finally, 2021 can be remembered as the year that the lines between the digital and physical worlds became more blurred than ever. The rise of decentralized networks and digital currencies, coupled with the mania over non-fungible tokens (NFTs), represent an awakening across the world that our lives are becoming more digitized. Facebook became Meta, Square became Block, and billionaires launched their own rockets into space as their fortunes soared. Authenticity, decentralization, scarcity, and more extremes are the hallmarks of this new era.
2022 should be very interesting.