Bull Market Overcame Virus Waves, Fed Pivot in Tempestuous 2021

(Bloomberg) -- A turbulent year in markets is coming to a close having rewarded investors who embraced risk despite worries about new coronavirus variants and shifts in monetary policy.

The S&P 500 Index ended the last trading day of 2021 with a drop of 0.3% that still left the equity benchmark 27% higher for the year and boasting no less than 70 record closes.

Cryptocurrencies and commodities also delivered substantial returns over the 12-month period in which the world rebounded from a global recession. But many investors holding government bonds are nursing losses after a spike in inflation that led the Federal Reserve and other central banks to scale back stimulus and move toward interest-rate hikes.

The receding wave of policy support may lead to a slower pace of recovery and is one reason why investors are wondering if corporate earnings will continue to bolster stocks in 2022. Ebbing liquidity could also threaten the most speculative corners of markets, like meme stocks, special purpose acquisition companies -- or SPACs -- and Bitcoin.

For Peter Berezin, chief global strategist at BCA Research Inc., 2022 will be the “last hurrah” for the stock market.

“Global growth will remain solidly above trend as pandemic fears recede, while inflation will come down as supply-chain bottlenecks ease,” he said. It will be a while before monetary policy turns restrictive, and laggards like value shares and non-U.S. stock markets should lead equities higher, he added.

Here's a look at how a notional $10,000 investment performed in a range of assets in 2021:

Lucid Return

Among the biggest 500 companies by market value, stock in electric-vehicle maker Lucid Group Inc. leads the pack, turning $10,000 into almost $40,000. Covid-19 vaccine maker BioNTech SE was another that delivered big gains, but 2020 pandemic stay-at-home favorite Zoom Video Communications Inc. would have lost you more than $4,000 as the world emerged from lockdowns.

Retail Power

One of the most phenomenal developments in markets in 2021 was the newfound power of retail traders, who organized en-masse in online chat rooms and rocked hedge funds by triggering short squeezes in previously unheralded firms. The poster children for the meme-stock revolution, AMC Entertainment Holdings Inc. and GameStop Corp., climbed more than 1,260% and 720% respectively.

What Didn't Work

A clutch of trades didn't work out in 2021 as many had hoped. Star fund manager Cathie Wood's flagship Ark Innovation exchange-traded fund (ticker ARKK) -- one of the big gainers in 2020 with a near-150% jump -- shed more than 20% this year. That showed how investors had a rethink about valuations for unprofitable tech companies amid rising Treasury yields.

At the other end of the spectrum, a range of reopening plays struggled: for instance, a notional $10,000 invested in the U.S. Global Jets ETF (ticker JETS) would have lost about $600. Some strategists argue that 2022 is when the reopening will really take hold as the pandemic finally recedes.

China Slide

China's stock and credit markets had a tough year, hurt by Beijing's regulatory curbs across sectors including technology and property that exacerbated an economic slowdown. Some strategists expect China to loosen policy and add stimulus, sparking a market rebound. But for now, $10,000 invested in giant developer China Evergrande Group's shares has been almost wiped out, while tech behemoth Alibaba Group Holding Ltd.'s stock would have roughly halved your money.

Crypto Shakeout

It was another wild year for crypto, with the sector's market value at one point close to $3 trillion. Bitcoin's share of the digital-asset universe declined, in part because Ether outperformed the world's largest token. Some argue Ether's popularity for applications like decentralized finance and non-fungible tokens -- digital collectibles -- merits the investor interest. A $10,000 investment in Ether would have grown to over $50,000, compared with about $16,500 for Bitcoin.

Commodity Cycle

A range of commodities had a strong year, luring investors seeking a hedge for their portfolios against inflationary pressures. The Bloomberg Commodity Spot Index hit a record high in October. While a number of raw materials could be singled out for their performance, one of the eye-catchers comes from base metals, where tin -- which doesn't normally get much attention -- almost doubled.