The broad S&P 500 index gained 27% in 2021 and closed at an all-time high 70 times, the most since 1995. The best performing S&P sector was not technology as one would infer from watching TV. Old-line energy, whose +48% annual gain was its best ever led the year. Real estate was the second-best performing sector at +42%, while tech and financials both rose +33%. Fundamentals took center stage (versus multiple expansion which contracted) as EPS rose between 40-45% year over year in 2021.
Anyone waiting on a “correction” (defined as a -10% or greater decline in the averages) to buy in 2021 is still waiting and likely missed most, if not all, of the years gains as the largest pullback on the year was -5.25. In addition, there was a stretch where the index recorded a streak of 8 straight days of new highs. This is the first year since 2016 where the S&P 500 outperformed the NASDAQ Composite. Thank your energy and real estate; The two groups hardest hit in 2020 by the initial Covid downturn.
Big Tech names had a great but not amazing year. Microsoft rose 51%, and Apple’s 34% gain has it sitting close to a $3 trillion market capitalization. Because of their immense size, large cap technology stocks were the top six contributors to the S&P’s performance.
Smaller, high-growth tech stocks lagged as investors worried about higher interest rates, inflation, valuations, and a flood of new IPOs and SPACs. The Ark Innovation ETF declined 24% after gaining 150% the year before. Many “stay-at-home” stocks that boomed at the onset of the pandemic also declined. For example, Zoom, zoomed lower and lost nearly half of its value in 2021. Peloton ran off the track and crashed more than 75%. A fund that tracks public offerings fell more than 9% for its worst performance in three years.
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