Versatility: The quality or state of having many uses or being able to do many different kinds of things.
2021 is drawing to a close. People may call it all sorts of adjectives; we will call it versatile! What has the year not thrown upon us – A resurgent Covid, the rise of labor, record-breaking IPOs, companies preferring a blank check, vaccines, boosters, and so much more! The markets have managed to digest all of it. Nothing’s over yet, for this may still persist going into 2022 as well!
For now, we bring to you the 10 trends that shaped the financial markets this year – some surprising, some not so.
1. Green All The Way
Ever driven in one-way traffic? Or a straight road with no curves? That’s how the US markets were in 2021. The risk-on sentiment was led by retail investors and the extra $$$ courtesy the Federal stimulus. Easy money meant stocks had a gala time. 2021 will be the third straight year where benchmark indices will end with positive returns.
The extent of the risk-on sentiment is evident from the fact that the steepest monthly correction seen by either of the benchmark indices is just 5%. Even when we take a look at returns from the last decade, all three benchmark indices have ended the year on a negative note in just two of them.
Here’s how the benchmark indices ended this year and over the last decade:
2. What’s In A Meme?
Memes were the flavour of the season when the stay-at-home trend began in 2020. Although they have been around for a while, they only became household names last year. Little did we know, that this term would translate into equity markets as well. The start of 2021, saw the rise of a phenomenon known as the Meme Stock Mania.
Meme stocks are generally referred to companies where share prices skyrocket often due to discussions on social media and other such platforms. As swifter as they rise, they are equally brutal when they correct. If you can imagine a patient’s ECG graph, it is easier to guess how the chart of a meme stock would look like. Of course, company fundamentals have no connection to the movement in the price of the stock.
A forum on Reddit called WallStreetBets came into the limelight in January this year when they began to buy GameStop (GME), after learning that a hedge fund had shorted the stock. Within days, the company’s share price rose from as little as $17 to as high as $483, a whopping 2,741% return in a matter of days. As people began to pile into the stock courtesy FOMO, began the brutal correction. The stock is now down 70% from its January peak but is still up close to 800% for the year!
Similar action was also seen in stocks like AMC Entertainment, BlackBerry, and Koss Corporation among others. The phenomenon was slowly forgotten towards the latter half of the year, but the first few months of 2021 belonged solely to them!
3. Hail The Hero Workers!
The voice of the worker was heard loud and clear across all corporate organizations in 2021. Their demands? Raise wages, improve working conditions and offer benefits like paid sick leave. Walkouts, protests, strikes, and rallies became common during the latter half of 2021.
A record 4.3M workers quit their jobs in August. Over 10K employees of the world’s largest tractor manufacturer Deere & Co., went on strike in October – a first in the last 35 years for the company. Deere wasn’t the only company where worker unrest grew. The list is a long one – Frito-Lay, Kellogg, Volvo, McDonald’s, Walmart, Wendy’s, Burger King, Jack in the Box, among many others. Not only corporates but hospitals have also seen staff raise their voices against understaffing and cuts.
If the shortage of labor was not enough, the unrest only added to the woes of the companies. They had no other option but to mend their ways. Chipotle, CVS Health, Starbucks, Walgreens, Walmart among many others raised their hourly wages in order to ensure that operations during the peak holiday season were not impacted. Similar was the case with parcel delivery companies who had their busiest holiday season in at least two decades! Many of these disputes haven’t reached a resolution yet, but the workers have made themselves clear that they cannot be taken for granted anymore!
Source: Winvesta Crisps
4. The Buzz Words
A company with zero or barely any revenue becomes the world’s largest IPO of 2021. That sums up the IPO market frenzy on Wall Street this year.
If there were two buzz words that kept ringing throughout the year on Wall Street, they were IPOs and SPAC mergers. Some found their worth, while
2021 was a record-breaking year for both the IPO market and the SPAC market in the US. 416 companies in the US took the IPO route, raising close to $155.7B. This number is the highest in 21 years! Healthcare and Technology were the two sectors that contributed to more than half of the IPOs this year.
Similar was the case with SPACs or Special Purpose Acquisition Companies. 2021 saw 583 SPAC IPOs which raised over $150B in the US. The year had more SPAC IPOs by number and proceeds than in the preceding decade combined.
5. Activism Is Back!
Another theme that emerged from the dead during the year was shareholder activism. On the radar, predominantly, were energy companies who were forced to come clean during the year.
One particular incident that grabbed eyeballs was of a little-known hedge fund known as Engine No. 1, who managed to vote two climate change activists on the board of Exxon Mobil, a first in the company’s history. Oil & Gas companies were under extreme pressure through the year to set short, medium, and long-term emission targets in line with the Paris Agreement.
Under the scanner from courts and activist investors, Royal Dutch Shell Plc., also made an exit from onshore production in Texas by selling its assets in the Permian Basin.
Other than energy companies, other retailers like Macy’s and Kohl’s have also come under the scanner of activist investors who want them to spin off their e-commerce businesses in order to generate more value for their shareholders. Their concern stems from the fact that Macy’s and Kohl’s have been two out of the three most underperforming retailers over the last decade.
6. On The Go…With Crypto
It started off only with Bitcoin. Today, we have Ethereum, Dogecoin, Litecoin, Cardano, Uniswap, Chainlink, and close to 8K other cryptocurrencies.
For a certain part of the year, it seemed as though global cryptocurrencies are controlled by one human – Elon Musk. Tesla accepts Bitcoin – prices go up, Tesla rejects Bitcoin – prices go down. It was Musk that brought Dogecoin into the limelight.
The frenzy has been such that we had a crypto exchange (Coinbase) listing on the stock exchanges and also witnessed the launch of the first-ever Bitcoin ETF. El-Salvador even went to the extent of adopting Bitcoin as legal tender.
Another surprising aspect emerged from Indian shores where investments into Cryptocurrencies grew by leaps and bounds. As of November this year, investments by Indians into crypto increased to over $10B from just $923M in April 2020. The interest is such that the government is now coming out with its own crypto regulations, the legislation for which is in the works.
Despite the wild swings, cryptocurrencies have had decent returns this year. Of course, that comes with a disclaimer: Not for the weak-hearted.
7. Vaccine Makers
If 2020 was the year of Covid, 2021 was the year of vaccines. Pfizer, Moderna, Novavax, AstraZeneca, Johnson & Johnson have all come up with their vaccines and are enabling the jabbing process across the world.
The sale of vaccines across the world has also resulted in a windfall for these vaccine manufacturers. For Pfizer and Moderna in particular, who earned anywhere between $20B – $40B through the sale of vaccines this year.
Although Moderna’s share price suffered during the latter part of the year due to the slashing of its sales guidance, the stock remains the best performer among vaccine manufacturers this year.
2020 was Covid, 2021 was vaccines, and 2022 is very likely to be booster doses! If that ends up boosting sentiment across the street, who are we to complain!
8. Buy Now, Pay Later…Maybe Never
Buy Now, Pay Later (BNPL) going mainstream was another trend that gained prominence during the year, as stimulus checks and availability of easy money made people splurge beyond their means. BNPL pioneer Affirm, was the first traditional IPO of the year and shares nearly tripled during the year.
Suddenly, BNPL became a buzzword. In August, Block, formerly Square and founded by Twitter’s ex-CEO Jack Dorsey, acquired Australian BNPL pioneer Afterpay for a whopping $29B. In September, PayPal acquired Japanese BNPL unicorn Paidy for $2.7B. Apple, too is collaborating with Goldman Sachs for its own version of the service.
But the mania now appears to be unravelling as regulators have sat up and taken notice of mounting losses and the risks posed by such offers. Read more about our coverage on BNPL firms here.
Therefore, it comes as no surprise that most of the BNPL companies have corrected sharply from their peak this year. Only Affirm and Mastercard have managed to keep its head above water…only just.
9. The Inflation Conundrum
Everything was up in 2021 – markets, cryptocurrencies, bond yields, and prices too. Consumer price inflation in the US jumped to the highest level since 1982! Most of us weren’t even born then!
Supply chain snags, federal stimulus, employers raising pay to ensure workers stay have all fuelled the surge in inflation. Prices of everything, from electronics to household furnishings and rental cars, have all gone up.
The Fed has now indicated three rate hikes in 2022. Will that manage to tame the inflation dragon, only time will tell. For now, this is one curve that investors would not want to remain at a high for sure!
10. Electric Vehicles
Earlier in the piece, we wrote about a company with zero or barely any revenue becoming the biggest IPO of the year. That was Rivian Automotive, backed by the likes of Amazon and Ford, which belongs to the field, which is touted to be the future – Electric Vehicles.
Every automaker you hear has now plans for EVs. Therefore, EV IPOs too have received tremendous investor interest, regardless of the fundamentals as what needs to be priced in is the “future.” Lucid was the biggest SPAC merger of 2021 until Grab surpassed it in early December.
However, not every EV company managed to have a fate like Rivian. Lordstown Motors, once much-hyped, is now struggling to stay afloat, with analysts pricing in targets as low as $2. Ford, GM, Volkswagen, BMW, everybody is now aspiring to be the next Tesla.
So what could be the next best thing that can happen to this sector in 2022? Let us guess, more IPOs maybe?
To end with Charlie Munger’s Quote:
“Using volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return.”
Here’s wishing you a happier and healthier 2022, with unprecedented returns in your global portfolio.