We can all agree that it’s been quite a year for the markets! As the world evolves, so do the influencers of financial markets, as is evident from some of the hypes and trends we witnessed throughout the year. Let’s take a little trip down memory lane!
Twitter lost Trump as a key market driver in 2021, but that flag was instead raised by Tesla, SpaceX founder, and just crypto enthusiast Elon Musk. He repeatedly single-handily caused pumps in Bitcoin, DOGE, and Floki throughout this year, mentioning them in his tweets and leading the trend towards adopting cryptocurrencies by corporations as a means of payment and capital preservation. In November, the richest man in the world pledged to sell $20bn worth of Tesla shares, contributing heavily to a 25% drop in stock price from the peak.
This year will go down in history for how a self-organized community of traders on a Reddit forum managed to drive up the prices of several second-tier US market stocks (‘stonks’), causing a short-squeeze by funds betting on their downside. By the end of the year, the names GameStop or AMC were no longer the loudest on the forums, having retreated significantly from their May-June highs, but they were still ten times more expensive than they were at the start of the year. The investment community has concluded that retail traders can be a real market force.
2021 was not a quiet or particularly delightful year for US equity markets, but they managed to add around 20% on the Nasdaq100 and S&P500 indices, putting it in the top 10 best years since the turn of the twentieth century. For EM markets, the year was divided into two parts: growth in the first half, followed by a decline in the second. We saw equities selling off on tight regulation in China, a monetary policy reversal from stimulus to control inflation, revenue problems due to logistical difficulties, crop failures, and price hikes.
This year we have seen an abnormally high number of supply chain disruptions. We have witnessed crop problems accompanying wheat, coffee, soybeans, and sugar price hikes. Before that, there was a remarkable rally in metals prices. The energy crisis in Europe sent gas prices on spot markets far into the all-time high territory; oil prices in the US rose to their highest since 2014, and gasoline prices broke records.
The investment world was prepared to see a repeat of the anemic inflation as it was after the global financial crisis, but prices surprised investors with their steady and sharp rise. Emerging market central banks have already started to raise rates in the first quarter of 2021, and towards the end of the year, we have seen a withdrawal of stimulus and rate hikes in developed countries. The rate hikes in 2022 could be the sharpest and widest in years (in terms of the number of central banks), promising to ignite a boom in financial markets.