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GUEST BLOG / By ANGELO KOURKAFAS, Edward Jones Company-- In 2021, the world returned closer to normal, but the pandemic continues to pose unique challenges. Even though there were a few market twists and turns, the year gave investors the best of both worlds: plenty of upside, with most major indexes achieving strong double-digit returns, and limited downside, with infrequent and short-lived pullbacks.
Supported by a strong economic recovery and very accommodative monetary policy, the S&P 500 reached an impressive 67 record highs this year, the most since 1996 (which continues to hold the 50-year record) and 2022 is likely to prove more challenging, but the outlook remains positive, in our view.
The economy grew at its fastest pace in nearly four decades
Powered by massive fiscal and monetary stimulus, a vaccine rollout and pent-up consumer demand, U.S. GDP likely grew about 5.5% in 2021, the fastest pace since 1984. With the benefit of strong household consumption (70% of the economy), economic activity reclaimed its pre-pandemic peak in the second quarter, a remarkable achievement considering the depth of last year’s recession.
Household finances emerged from the crisis in better shape than they went into it, courtesy of government support and a rising stock market and home prices. Spending on big-ticket items surged, pushing goods consumption well above its pre-pandemic trend. On the other hand, spending on services is still trying to recover amid the ongoing pandemic.
Unemployment declined from 6.7% at the beginning of the year to 4.2% in November, achieving in one year what took almost four years in the last expansion (2014 to 2017).1 As the year ends, there are increasing signs of labor market tightness. Job openings exceed the number of unemployed, and policymakers are not convinced the more than 2 million people who have left the workforce will return. 2022 implications – Growth will likely moderate from this year’s rapid pace to about 3%-4%, but this is still above the 2.2% average over the last decade.
Even though the stimulus will fade, consumers saved a good portion of the government income they received, and further jobs gains will continue supporting incomes. A full return to normalcy, though difficult to time, is likely to unleash pent-up demand for services such as travel and entertainment.
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