2021 started the year with a sense of optimism as people emerged from a depressing and gloomy year after the Covid-19 global shutdown. The dominant word is resiliency because it implies hope, faith, and possibilities. This one word best sums the shared experiences of billions of people worldwide.
According to Dr. Ginsburg, the famous child pediatrician and human development expert, the seven components that make us resilient are competence, confidence, connection, character, contribution, coping, and control.
While there is no doubt resilience is a valuable trait, there can be too much of a good thing when taken too far. Along the same line, too much resiliency can lead to being overly tolerant of adversity. Resilience can also erode slowly over time if one is not careful to manage stress and pressure. It may also decline under emotional events or over a prolonged period of stress.
After a year like 2021, the idea of making annual predictions seem to be an overly ambitious task and haphazard at best. The pandemic continues with the new dominant Omicron. The Fed’s monetary policy to produce a soft landing is an unknown. Congress struggles to pass the Build Back Better bill. Inflation continues to rise at an uncomfortable pace.
While it is difficult to predict precisely how the pandemic, economy, or market will unfold next year, resiliency will undoubtedly be a dominant theme.
With less than a week before the end of the year, the S&P 500 Index (SPX – 4,791.19) has gained 1,045.42 points or 27.56%. The Dow Jones Industrial Average (INDU – 36,302.38) has appreciated 5,695.90 or 18.61%, and the Nasdaq Composite Index (COMPQ – 1,587.26) has increased 2,982.98 or 23.14%.
Every time SPX has risen too much and too fast, market pundits have warned about the end to the 8-plus-year-old structural bull run. However, each time the stock markets declined, traders and investors have adamantly supported the market by buying. Yet here we are a few days before the end of the year, and SPX recorded its 69th record close of the year. The stock market is building up a lot of momentum, igniting another year-end Santa Claus rally. Even now, the stock market remains more resilient than many give it credit and will likely remain resilient next year.
However, investors and traders are no longer interested in 2021. It is old news as they turn their attention to 2022 and the future. Next year is another mid-term election year. The second year of a U.S. presidential election year tends to be volatile. It will shake the confidence of many investors. But mid-terms election years are often associated with 4-year cycle bottoms.
The stock market will head into 2022 with similar concerns as last year, including pandemic concerns, inflationary pressures, and Fed tapering and rate hikes unknowns. Despite macroeconomic and health issues, investors remain upbeat and in risk-on-mode. Next year will likely be more balanced with a tilt toward both sides of the investment barbell. One side comprises value/cyclical/reopening stocks, and the other consists of structural growth names (technology, e-commerce, biotech, cloud, cybersecurity, electronic payments, etc.).
Although SPX has broken below its 50-day ma a few times this year, at no time did SPX risk breaking its critical 200-day ma. Is it entirely possible SPX and other major indexes may finally break their 50-day ma and go on to challenge and even violate their respective 200-day ma? Will another mid-term election year cycle bottom, if it occurs, set the stage for the next sustainable SPX bull rally?