T.Financial markets climbed a wall of worry until 2021 as investors raised asset prices in the face of persistently high inflation, a global supply chain crisis and one of the most frenetic speculative booms in decades.
Stocks soared to record highs as money was poured into stocks, deals soared and investment gamification reached new heights. Here are some of the highlights of a roller coaster year.
Meme stock chaos
The drama of the year began on Wall Street, where groups of retail traders came together through online forums to attempt one of the biggest short squeeze in the history of the market.
Organized through Reddit’s Wall Street Bets group, they focused on losing stocks that hedge funds had exposed (by selling borrowed stocks, planning to buy them back at a lower price in the future).
In a frenzy that has gripped Wall Street, the WSB military used two weapons to reduce hedging: call options – derivatives that gave the right to buy shares at a certain price – and memes, to fuel their purchases. orchestrated, while tapping into the public disgust of predatory speculators.
The phenomenon began with the US video game retailer GameStop, which pushed its stock price up an astonishing 1,700% in one month and briefly wobbled the markets as hedge funds recorded huge losses in an attempt to buy back stock. borrowed.
But this squeeze was dramatically and controversially punctured after the Robinhood trading app held back stock buying. He blamed the demands of his clearing houses; r / wallstreetbets cried out in scandal, though a lawsuit claiming a conspiracy with market maker Citadel Securities was dismissed last month.
The saga brought a new vocabulary to enter the markets, with “diamond hand” traders refusing to fold their positions and others shouting “yolo” (you only live once) as they embarked on risky trades but potentially profitable.
This GameStop frenzy has been repeated with the AMC film group, the Bed Bath & Beyond retail chain and the Avis car rental group, flaring up multiple times throughout the year.
These rallies ended in tears for some retail traders, who were left holding the bag as meme stocks dwindled. But despite a slump in late December, GameStop is still up 700% this year, with AMC up around 1,200%.
Special Purpose Acquisition Companies (SPACs) – created to buy other still unknown companies – also boomed earlier in the year, before fading as some posted negative results. In December, a fund that followed Spacs fell more than 20% for the year, while the S&P 500 rose more than a quarter.
This speculative fever was fueled by a lot of money pouring into the system, thanks to record low interest rates and pandemic stimulus programs.
“The big issue remains how the price of all financial assets remains grossly inflated on both a relative and absolute basis,” says Bill Blain, a strategist at Shard Capital.
Central bankers continued their ultra-loose monetary policy until 2021, repeatedly reassuring markets that the price increase would be temporary. The US Federal Reserve continued to buy $ 120 billion (£ 89 billion) of bonds each month, but eventually began tapering off the program in November, when inflation hit its highest level in decades.
This “monetary distortion” has distorted the way people think about the capitalist free market, Blain argues. “The distorted prices of financial assets create all kinds of unwanted consequences: from stalling the normal ‘business cycle’ allowing the survival of obsolete zombie companies, suffocating and distorting the evolution of the business, to facilitating the wrong direction of capital. internal economy “.
Or, as the Wall Street Bets crowd put it, “go brrr money printer”.
These massive distortions were most evident in the cryptocurrency market, where the combined value of bitcoin, ethereum and newcomers like Solano hit $ 3 trillion in the summer, before prices cooled over the course of the year.
Cryptocurrencies have reached some key milestones: El Salvador became the first country to make bitcoin legal tender, in a launch marked by technical problems, but there have also been several crashes, including a Chinese crackdown on Bitcoin. bitcoin mining. After hitting record highs of around $ 69,000, bitcoin ends the year below $ 50,000, up 64% for the year.
Supply chain shock
Supply chain problems have gripped the global economy, with major consequences for raw material inventories. Covid’s disruption to commercial networks and factory production was exacerbated after container ship Ever Given wedged into the Suez Canal in March.
While iron ore and copper have experienced volatility, timber prices have truly stood out. They rose in the first half of 2021, jumping 400% to a peak of $ 1,700 per thousand plank feet in May amid low inventory. But prices then plummeted as builders halted construction projects. Agricultural inflation has also affected people. Global food prices hit a 10-year high, with corn and wheat rising 20% and Arabica coffee bean prices rising 80%.
If investors had known on January 1 that US inflation would hit 6.8%, a 39-year high by November, they would have been forgiven for investing in gold. But traditional inflation hedging had its worst year since 2015, losing around 4% and lagging behind many other assets.
Inflation has hit fixed income assets as well, with global bond markets on course for their worst year since 1999.
Overall, the UK’s FTSE 100 had a solid year, gaining around 14%. Wall Street posted strong gains, with the Nasdaq Composite up 21% and the broad S&P 500 index up 28% over the year, including 70 record highs.
Big tech has gotten more and more powerful, with Apple, Google, Microsoft, Nvidia and Tesla accounting for over a third of the S&P 500’s returns this year.
But smaller, less profitable tech stocks plummeted, as their pandemic sales growth slowed and the U.S. Federal Reserve moved towards rising interest rates next year, dampening their allure as rising stocks. .
An unprofitable US tech stock index created by Goldman Sachs was pummeled in November. By the end of the year, the bull market in tech IPOs had turned into a bear, with most US tech fluctuations at least 20% off their high point.
Videoconferencing operator Zoom fell 45% over the year, while Peloton flopped 75% near pre-pandemic lows, dragged down by a reluctant cameo in Sex and the City.
“At the extreme, stocks that would not have looked out of place in the 2000/2001 tech bubble are on average 60% lower than at the start of the year,” said David Miller, investment director at Quilter Cheviot.
“Chinese tech companies fell by a similar amount, but for different reasons. The growth-value rotation that is still being pulled out by the one-trick-pony strategists looks like it may already have happened ”.
Beijing has given the markets several alarms, with the indebted real estate group Evergrande threatening to cause a disorderly collapse and shake the Chinese economy.
In the summer, President Xi Jinping launched a crackdown on technology companies, plunging shares in overseas-listed companies such as ride-hailing service Didi. Brakes on the education sector and stricter controls on children playing video games have also shaken some actions.
It’s been a record year for global mergers and acquisitions (M&A) business, with piles of capital and skyrocketing valuations leading to a whirlwind of deals. According to Dealogic data, the value of mergers and acquisitions globally exceeded $ 5 trillion for the first time, breaking the record of $ 4.42 trillion set in 2007, before the financial crisis.
But veteran investor Charlie Munger had a word of caution this month. Munger, 97, told a conference that the markets are wildly overvalued in some places, warning that “I see this as an even crazier era than the dotcom era.”