The S&P 500 rose more than 27 percent in 2021: – Now the easy years are over, says head of analysis Pål Ringholm

On Wall Street, the stock exchanges were also open on New Year’s Eve. All of the leading indicators saw a relatively steady development during New Year’s Eve, before they all fell to the downside for the day:

• The Dow Jones Industrial Average, which is made up of 30 carefully selected supposedly important stocks, fell 0.16 percent.
• The Nasdaq Composite Index, which is dominated by technology companies, was down 0.61 percent.
• The Standard & Poor’s 500 Index, which is made up of 500 of the largest listed companies in the United States, fell 0.26 percent.

“Buy a Dipping Ring”

The broad S&P 500 ended up 27.2 percent in 2021, and there were few declines during the year. The pandemic, supply crunch, novel coronavirus variables, reduced support purchases or announced interest rate increases have not succeeded in stifling market euphoria.

The Nasdaq Composite and Dow Jones are up 21.3 and 18.7 percent, respectively, in 2021.

“What was cool and surprising was that as soon as there was a slight dip in the stock market, the regression ring buying was immediately there with a regressive power that you can’t help but be envious of,” says Head of Analysis at Sparebank 1 Markets.

The S&P 500 fell nearly 35 percent when the pandemic hit, but recovered within six months. The index is now up nearly 115 percent since March 2020. The 27.2 percent rise makes 2021 the index’s third best year since 2000, with 2013 and 2019 (29.6 and 28.9 percent, respectively) better.

According to Bloomberg The same amount of money was invested in equity funds this year as in the past two decades combined.

– Then you can ask the question: how much return on the largest stock exchange in the world by far the largest stock exchange after the financial crisis can be attributed to the US Federal Reserve, asks Ringholm, happy to answer himself:

We estimate that about half of the increase in value came as a result of zero interest rate policy and quantitative easing, says Ringholm.

– Gone are the easy years

Over the past two years, markets have been marked by interest rate cuts and support purchases from the US Federal Reserve. When the epidemic broke out, the Federal Reserve lowered the key interest rate to zero, at the same time starting to support the purchase of government bonds and mortgage securities by several thousand billions of kroner per month, before lowering the amount to 120 kroner. billion dollars a month.

In November and December, the Fed ditched its $15 billion purchase support. However, the central bank recently decided to step down by $30 billion per month from January to beat accelerating inflation. Fed members now expect three rate hikes next year.

On January 3, Ringholm will begin as investment manager at the Capital Region Health Funds Pension Fund. The market connoisseur does not consider that there will be a dance on the roses.

I think 2022 will be a more turbulent year for investors. Gone are the easy years. Now we will see higher interest rates. At the same time, central banks will stop stimulating financial markets without restrictions by buying securities, says Ringholm.

At the same time, the economy is the most important for corporate profits. But if this has anything to do with the fact that half of the increase in value in the stock market is due to central bank behavior, it raises concern going forward, Ringholm says.

Ten potential shocks

The US Consumer Price Index (CPI) rose 6.8 percent year on year in November, while the revised CPI for energy and food prices (core inflation) rose 4.9 percent. For kpi, this was the highest number in nearly 40 years. After the previous monetary policy meeting in mid-December, Fed Chairman Jerome Powell clearly cited inflation as the main reason for the shift in monetary policy.

Ringholm recently wrote his latest column in DN where he presented, traditionally, ten potential shocks to financial markets in 2022.

Ringholm believes that a price increase first and foremost will be important to pursue next year. Ringholm says inflation is either temporary, or even higher than we thought at the start of the year.

We still have problems in the value chain, and now energy prices are going up. Eventually there may be a wage increase, and then we get to work, Ringholm says.

Among other risks, Ringholm points to debt-laden Chinese homebuilders, geopolitical conflicts, and last but not least: the cryptocurrency market with a total value of more than NOK 20,000 billion.

– Cryptocurrency is priced completely beyond values. Some may survive, but others simply resemble a Ponzi scheme, so the market can collapse, Ringholm says.

The Oslo Stock Exchange had its last trading day on Thursday, with the main index rising 0.2 percent to an overall rise of 23.35 percent in 2021.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.