US and Global Markets: 2021 in Review and Outlook for 2022

2021 was the sixth-best year for US equities since 1990. The S&P 500 gained 26.9% while the Dow Jones Industrial Average and the NASDAQ Composite gained 18.7% and 21.4%, respectively.

Bonds ended the year lower with the Barclays Aggregate Composite declining 1.77%.

Following is an overview of key events in 2021 and an outlook for 2022.

A Strong Year with Low Volatility

Volatility was very low in 2021 despite headlines that included an attack on the Capitol, historically high inflation, supply chain disruptions, multiple correction forecasts, and two new COVID-19 variants; this didn’t deter US stocks from making all-time highs.


  • The S&P 500 recorded 70 all-time highs in 2021, a record second only to 1995
  • The S&P 500 maximum intra-year drawdown was only 5%, markedly lower than the average which is closer to 11%

New Market Speculators

Excess liquidity in the system brought speculation to the market. 2021 began with a new breed of market participants commencing a speculative form of trading as amateur investors used social media to drive up company shares that hedge-fund professionals were shorting.

Video game retailer GameStop (GME) gained as much as 1,700% and AMC Entertainment Holdings (AMC) surged more than 800% in January alone. Both stocks are well off their highs for the year but closed 2021 above where they started.

Some investors rushed into special purpose acquisition company (SPAC) deals in 2021, which allow private companies to go public without the lengthy IPO process.

This part of the market also became quite heated early in 2021, but most of these SPAC prices abated by year’s end.


  • There were pockets of speculation during 2021, but the overall market didn’t see excess exuberance.
  • In fact, the number of stocks participating in the index returns faded into the latter part of the year. Early 2021 saw upwards of 90% of constituents in the S&P 500 trading above their 200-day average, but that fell below 60% as the year continued.
  • By year-end, just five stocks—Microsoft (MSFT), Google (GOOG), Apple (AAPL), Nvidia (NVDA) and Tesla (TSLA), accounted for 51% of the S&P 500’s return since April.

The Market Valuation

Steady upward earnings revisions supported market gains throughout the year. Despite a nearly 27% rise in the S&P 500 Index, the index price-to-earnings fell as earnings rose faster than stock prices.

Though the index multiple remains elevated at 21.1 times versus the 25-year average of 16.8 times, it may not be unwarranted considering the underlying strength of the economic outlook.

Considerations for 2022

Some market dynamics have shifted, but there are many reasons to continue being constructive on equities.

Labor Market

Labor market recovery has been notable. The United States added 18.5 million nonfarm jobs since April 2020, with new unemployment claims reaching a 52-year low.

Rising wages in a tight labor market could challenge corporate margins, but strong household balance sheets and pent-up demand-for-services should bode well for consumer consumption, which makes up 70% of gross domestic product (GDP).

Corporate Balance Sheets

Corporate balance sheets are strong and will likely support healthy capex spending and productivity trends into 2022. Business investment recovered faster than global growth in 2021 and more significantly than in recent downturns.

If new capital investment embodies greater technological advancement, then productivity could be boosted, further lessening inflationary pressures and allowing continued growth. Private sector demand could be sufficient to keep the economy growing above trend.


Inflation will likely continue into early 2022, though signs show that inflation may be peaking. Supply chain issues that fueled inflation look set to dissipate in the second half of 2022.

Recent wage growth could boost participation rates making rising labor costs more of a level shift than a persistent trend.

This improving productivity trend could allow firms to absorb higher wage costs, which could dampen some of the inflationary pressures seen in the second half of 2021.

Federal Reserve

The Federal Reserve kept interest rates near zero throughout 2021 and continued their asset purchase plan adding liquidity to the markets each month, which encouraged consumption and likely exacerbated COVID-led supply bottle necks contributing to inflation.

The Federal Reserve also announced plans to begin tapering its monthly bond-buying program in November, suggesting the program will be eliminated by March 2022. Policymakers also indicated plans to increase the federal funding rate, potentially as many as three times in the new year to temper inflation.

Pivoting from easy monetary policy to a tightening bias has historically created volatility in the markets, but this change being widely communicated could mean fewer bumps than previous periods of federal tightening.

If new capital investment embodies greater technological advancement, then productivity could be boosted, further lessening inflationary pressures and allowing continued growth. Private sector demand could be sufficient to keep the economy growing above trend.


Here’s a look at individual markets.


US stocks ended the fourth quarter strong with technology being one of the best performers led by chipmakers. Utilities and real estate also performed well.

Investors expect e-commerce to continue growing, which should drive further demand for industrial warehousing—a constructive shift for the real estate space.

Energy and financial names made more muted gains over the quarter. Rotation into these more value or cyclical sectors heading into a rising rate environment could be expected in 2022.


Eurozone shares made gains in the fourth quarter as a focus on strong corporate profits and economic resilience offset worries over the Omicron variant.

Some countries introduced sector restrictions, such as travel and hospitality, trying to reduce the variant’s spread. Rising COVID-19 cases negatively impacted the services sector. Overall, equity markets drew support from early data indicating a lower risk of severe illness from the new variant.

Emerging Markets

Emerging markets struggled for most of 2021 led by Chinese equities, which contributed to the 25% underperformance of emerging market equities versus developed markets.

More supportive fiscal and monetary policy and a less restrictive regulatory environment should provide a better backdrop for emerging markets in 2022. However, a less lavish supply of US dollars and the prospect of higher US rates could continue to be a headwind for some emerging markets, at least in the near term.

The long-term growth and investment outlook for emerging markets still looks compelling, particularly after the sharp price-to-earnings ratio contraction of the past year.

Global Bonds

Global bonds digested persistent elevated inflation, hawkish central bank policy shifts, and the emergence of the Omicron COVID-19 variant throughout Q4.

In treasuries, the 10-year government yield was largely unchanged. Yields followed a downward trajectory for most of the quarter before reversing in the final weeks of the year as sentiment improved.

Yield curves flattened, with shorter-dated bonds rising as central banks turned more hawkish.

Key Takeaways from 2021

  • 2021 was a year of strong returns driven by robust economic growth and a powerful rebound in earnings. Growth will likely moderate in 2022 but with a continued positive backdrop for equities.
  • Elevated inflation levels will probably moderate in 2022 as supply chain issues ease, possibly removing pressure on central banks to hike aggressively. Rates seem likely to continue rising.
  • The strong earnings outlook and continued momentum in the global recovery should be constructive for developed international and emerging equities, especially given their attractive valuations versus US equities.
  • US consumers are in a strong cash position with over $2 trillion in checking accounts and other short‑term deposits, which should support consumption.
  • Corporate balance sheets are performing well with high liquidity and low debt, which should support capex spending.

Looking Ahead to 2022

Investors should prepare for more muted gains in the coming year as extremely supportive monetary policy shifts to tighter monetary conditions, which could mean more volatility in 2022.

Macroeconomic fundamentals remain positive with some risks. Well-executed and diversified, long-term financial plans can give comfort during periods of volatility, helping investors to stay the course.

Long-term investors have historically been rewarded for staying invested instead of taking short-term market actions.

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If you have questions about the 2022 outlook and how trends might impact you or your investments, please contact your Moss Adams professional.

You can also learn more about our Private Clients Practice and additional topics affecting investors.

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