Stock prices on the New York Stock Exchange ended a quiet day with modest losses on Friday, although Wall Street ended another exceptional year.
The S&P 500 ended up with a 26.9% gain for the year, or a total return of about 29% when dividends are included. That’s about the same as it gained in 2019. The Nasdaq Composite, driven by big tech stocks, was up 21.4% in 2021. The Dow Jones Industrial Average gained 18.7%, with Home Depot and Microsoft leading the way. .
“This is the third year in a row of incredible earnings,” said JJ Kinahan, chief strategist at TD Ameritrade. “The market itself has been incredibly strong.”
Strong consumer demand fueled by reopening economies fueled 2021 corporate earnings more than expected, helping keep investors in the mood to buy. Wall Street also got a boost from the Federal Reserve, which kept its key short-term interest rate near zero throughout the year. That helped keep company loan costs low and stock valuations high. Investors expect the Federal Reserve to start raising interest rates next year.
There was also intense interest in so-called “meme assets,” in which large groups of individual investors bought shares in depressed companies such as GameStop and AMC Entertainment, causing institutional investors, such as hedge funds, to lose billions. The bull market also sparked an explosion in initial public offerings, such as online broker Robinhood and electric vehicle maker Rivian Automotive.
Throughout the year, the S&P 500 hit 70 all-time highs, the last of them on Wednesday. In the post-WWII era, it’s the highest number of new highs for that index since the 77 it totaled in 1954.
The market continued to set new records despite many challenges, including rising inflation, disruptions in the global supply chain, and outbreaks of more contagious variants of the coronavirus.
“While there are a lot of things that people have been nervous about throughout the year, and continue to be as we get closer to 22, the US (stock) market is still the best at the end of the day,” Kinahan said.
However, the omicron variant and uncertainty about disruptions in the global supply chain remain concerns heading into the new year. So is the impending end of the Federal Reserve’s easy money policies.
The central bank has indicated that it plans to accelerate the reduction of monthly bond purchases that have helped keep interest rates low. The policy change paves the way for the Fed to start raising rates as early as the first half of next year.
Stock trading was slow on Friday as most of Wall Street was on vacation and many fund managers had already closed their positions by 2021.
The major indices spent much of the day oscillating between small gains and losses. The S&P 500 lost 12.55 points, or 0.3%, to 4,766.18. The Dow was down 59.78 points, or 0.2%, and closed at 36,338.30. The Nasdaq fell 96.59 points, or 0.6%, to 15,644.97.
The Russell 2000 of small businesses was down 3.48 points, or 0.2%, and finished 2,245.31. The index ended 2021 with an annual gain of 13.7%.
The yield on the 10-year Treasury was flat at 1.51% after the bond market closed at 2:00 pm ET before the New Years holidays.
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