As we begin a new year, a brief review of a truly remarkable 2021 may set the stage for what’s ahead. Steve Wyett, chief investment strategist at BOK Financial®, weighs in on 10 market facts worth knowing about 2021, in no particular order:
1. The S&P 500 outperformed the NASDAQ for the first time since 2016 and only the second time since 2011.
In recent years, the tech-heavy NASDAQ has consistently outperformed the broader indexes tracking domestic and global stock markets.
"The S&P 500 has a broader representation of companies, so its out-performance in 2021 indicates that economic growth allowed more and different kinds of companies to improve financial performance last year," Wyett explained.
2. The S&P 500 reached 70 new highs.
The number of new peaks in 2021 was the second highest total in history—barely missing the record of 77 new highs set in 1995.
3. According to the Chicago Board Options Exchange (Cboe) , the average daily notional volume of single stock options exceeded the average daily notional volume of individual stocks.
"As we moved through the pandemic, there was a large increase in retail participation, which was reflected in greater option utilization," Wyett said. "Options provide a different set of outcomes than traditional stock investing, which was popular with individual investors."
4. The three-year price return on the S&P 500 was 90.13%—the highest level since 1999. Despite the economic shut-down in response to COVID-19, equity markets have had a tremendous three-year run.
5. Global inflows into ETFs roughly doubled from 2020 levels to $1.14 trillion.
Exchange-traded funds (ETFs) broke a record crossing the $1 trillion mark in 2021. ETFs continue to see a large share of investor flows into the equity markets with global ETF assets under management coming in at roughly $10 trillion.
6. In the Russell 3000, 18% of companies are currently trading at 10x sales.
"The valuation level of the overall equity market is above longer-term averages. Seeing companies trade at a high multiple of sales reflects a willingness to price in a lot of future growth into some company stocks," Wyett explained.
7. The Russell 2000 has underperformed the Russell 1000 for five years in a row.
David has been consistently besting Goliath. Over the longer term, the smaller-cap Russell 2000 has outperformed; however, for the last five years, high-quality companies with stocks that provide a high level of liquidity, have been in demand.
8. The difference in performance between small cap indices S&P 600—up 25.3%—and Russell 2000 —up 13.7%—was greater than in any year since the year 2000.
"Even within similar capitalization structures, the makeup of one index versus another can result in performance differences. In 2021, though, this performance differential was wider than normal when comparing the S&P and Russell small cap indexes," Wyett said.
9. S&P 500 operating earnings are on track to have increased by 49%, with a surge in revenues of 15.8% and in profit margins of 28.8%.
"Corporate earnings recovered strongly as we rebounded from the economic shut-down in 2020," he said. "Not only were revenues higher, but margins expanded, allowing earnings to move up even more than revenue increased."
10. Never before has University of Michigan consumer sentiment data declined by double digits for two consecutive years while the S&P 500 posted double-digit gains.
The economy grew, corporate earnings were strong and stock prices were higher—but the pandemic continued to weigh on consumer sentiment.
"The ongoing difficulty in getting schools open, disruptions in the labor market and the continued risk of COVID variants make the future hard to discern," Wyett said. "Overall, we remain optimistic, but are vigilant for potential changes to come.
"We expect positive economic growth and continued earnings growth for U.S. corporations. The Federal Reserve has begun the process of reducing monetary policy accommodation and fiscal stimulus will be less than the last couple of years, but a strong job market and continued progress in our ability to live with COVID-19 bode well for the U.S. consumer to drive economic growth going forward."