As 2021 comes to a close, we should look up on what happened this year and see if there are any lessons that we can take from it. Overall, the Dow went up roughly 5300 points in 2021 or about 17%. The S&P 500 went up about 962 points or 25.3%. The Nasdaq went up about 2577 points or 19.7%. The Russell 2000 went up about 148 points or 7.1%. Despite the new variant and all the things happening in the news, the stock market was very strong in 2021. Yes, there were bad months, so so quarters, and lots of exciting news.
While the market seemed tumultuous while we were living in it, if you take a step back, the year went up pretty smoothly. The Dow went up 7.9% in quarter 1. It went up 2.7% in quarter 2. It went up .97% in quarter 3. It went up 4.6% in quarter 4. A lesson you can take from this is that sometimes in order to see the truth you have to take a step back. In truth, the pandemic has not had a negative effect on the stock market. Since the very first case 2 years ago, the market has done fantastic. Another lesson you can take from this is that even if the pandemic continues and there is another variant, the stock market will likely do fine. Stock prices are not about the current economic situation. They are a prediction of the economy a year or two in the future. Stock prices are people’s expectations of the future. And, everyone knows that the pandemic will eventually be over.
Large cap stocks did substantially better than small cap stocks in 2021. The Dow went up 17% vs the Russell 200 going up 7.1%. For whatever reason, the larger companies were able to adapt better than the small companies to the pandemic economy. Historically small cap stocks have done better than large cap stocks. We’ll have to wait and see if that status quo is reestablished in 2022 or if things will take longer than that to return to normal.
The overall lesson to take from the entire pandemic is to not panic and not to get greedy. The stock market has survived and subsequently thrived after every disaster in world history. Sometimes the market has a pause or dip (or big dip), and sometimes it doesn’t. The overall trend is going up. The only guarantee is that you will live in exciting times. Ignore the noise. Just sit back, relax, and watch your money grow. Do not get greedy and increase your risk. Bad times happen too.
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Daniel and Eli
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