2021: Review of the Main Events of the Year

Investing.com - 2021 is coming to an end, and while there have been significant market improvements compared to the previous year, there has been considerable volatility along the way.

Let's recall the departing year and the main events that happened during this time. The First Quarter: Biden's Inauguration

January: The New Year began much like the old one ended - with the COVID-19 virus casting a ominous shadow over the global market. The official number of COVID-19 deaths worldwide surpassed the 2 million mark in January.

Supporters of President Donald Trump stormed the Capitol in Washington, resulting in 5 deaths, and Trump was impeached: for the first time in U.S. history, a president faced impeachment twice. President Joe Biden's inauguration ultimately proceeded smoothly, and he promptly introduced a $1.9 trillion economic stimulus package to combat COVID-19.

The market found a new trading theme - inflation.

COVID-19 quarantines led to disruptions in supply chains and inflationary pressures, and the economic stimulus deal intensified this pressure. The Federal Reserve stated that the short-term rise in prices did not cause concern, but traders began to expect it to take action. The yield on U.S. Treasury bonds began to rise, and the dollar rose simultaneously with it.

Starting the year around $30,000, Bitcoin surged to over $40,000 before falling by 10%.

So-called meme stocks surged. GameStop (NYSE:GME), a video game retailer, played a central role in this phenomenon. Professional short sellers were betting on a decline, considering the lack of the video game retailer's presence on the internet during the pandemic. Retail investors, using social media sites and cheap trading platforms, sought to "squeeze hedge funds" and launched an attack. GameStop's shares soared 400% during the last week of the month.

February: The stock market soared this month amid optimism that mass vaccinations against COVID-19, including the new Johnson & Johnson vaccine (NYSE:JNJ), would mean a swift return to normal life.

Jeff Bezos announced he was stepping down as CEO of Amazon (NASDAQ:AMZN) after 30 years, during which the company grew from his garage into the largest e-commerce retailer in the United States by market capitalization.

At the end of the month, there was a sharp sell-off in U.S. Treasury bonds, and yields surged sharply after weak demand for them during a Treasury bond auction.

Bitcoin surged 50% to $58,000 and reached a market capitalization of $1 trillion as major companies like Tesla (NASDAQ:TSLA) and Mastercard (NYSE:MA) embraced the cryptocurrency.

Crude oil prices continued to recover amid growing confidence that demand for oil would sharply increase as vaccines facilitated the global economic recovery. This was aided by a severe winter storm in Texas that halted oil shipments.

In terms of politics, former President Donald Trump was acquitted in a second impeachment trial in the Senate, as the Republican Party largely remained loyal to him. Mario Draghi, former head of the European Central Bank, was sworn in as Prime Minister of Italy, and civilian leaders, including Aung San Suu Kyi, were detained in Myanmar following a military coup.

March: The search for a return to normalcy continues. The rollout of COVID-19 vaccines, especially in the United States and the United Kingdom, helped boost the stock market.

The S&P 500 index rose more than 4% in March, while the Nasdaq 100 index gained just under 0.5%, as growth stocks continued to lag behind value stocks.

In the European Union, problems worsened due to a lack of vaccine logistics organization, as AstraZeneca (LON:AZN) struggled to deliver as many vaccine doses as promised. At the same time, concerns about side effects of vaccines causing blood clots raised doubts about their effectiveness.

Inflationary concerns continued to unsettle the bond market, as the yield on 10-year U.S. bonds steadily rose, ending the month up 1.73% after the passage of the $1.9 trillion stimulus package and the development of a substantial infrastructure development plan.

Bitcoin first surpassed $60,000 before retreating in volatile trading.

Oil prices rose; meanwhile, the global benchmark Brent surged to $65 per barrel. At the end of the month, a container ship with a capacity of 224,000 tons, owned by Evergreen Marine, got stuck in the Suez Canal, creating a bottleneck on one of the busiest waterways in the world. The Second Quarter: "Trust me, it's temporary"

April: Large-cap stocks attracted widespread attention as the second quarter saw strong earnings and economic data. The S&P rose 5.3%, Nasdaq 5.4%, and the Dow Jones Industrial Average index by 2.8%.

The Federal Reserve continued to be committed to maintaining stimulus a year after cutting rates to zero, firmly holding the view that any price increases would be "transitory." Inflationary pressures, evident in March, seemed to ease slightly in April, and the yield on 10-year Treasury bonds fell to 1.63%.

By the end of the month, about 100 million Americans had been vaccinated against the coronavirus, a hopeful sign that the economy could recover quickly. However, unemployment remained high at 6%, and around 2 million Americans were still unemployed compared to pre-pandemic times.

Job growth in the US disappointed in April, but the full extent of employment was assessed only in May when the monthly labor market report for April showed that 266,000 new jobs were created during that period. Economists had expected 1 million. These weaker-than-expected figures sparked debate about whether extended unemployment benefits were keeping workers from seeking employment.

Bitcoin reached a peak of $63,400 in April but then fell to $50,000.

May: The Dow Jones Industrial Average rose by 2.2% for the month, the S&P 500 by 0.7%, while the Nasdaq fell by 1.4%. Concerns about inflation began to intensify amid discussions of rising costs and labor shortages.

Consumer prices and producer prices continued to rise, grappling with labor shortages, wage growth, delivery delays, and material shortages.

President Biden announced July 4 as the deadline for vaccinating at least 70% of adult Americans with at least one dose. By the end of the month, 135 million Americans were fully vaccinated, and the delta variant of the coronavirus, which soon appeared in the US, was gaining momentum in India.

The stock market's late-month rally was a response to the protocol of the Federal Reserve's April meeting on monetary policy, where officials signaled a shift in their views. The minutes stated that ongoing progress in the economy could make it appropriate for the Fed to begin discussing the timing of reducing bond purchases, which is the first step in scaling back economic stimulus since the start of the pandemic. By the end of the month, 10-year Treasury yields had fallen to 1.59%.

On May 8, Bitcoin was trading above $59,000, then fell to a 4-month low.

June: Despite the increase in the number of COVID-19 cases prompting European governments to reconsider their plans for business reopening, stock indices continued to rise. The Nasdaq rose by 5.5%, while the S&P 500 rose by 2.3%, and the Dow Jones Industrial Average remained unchanged.

By this time, Federal Reserve officials had signaled the likelihood of two interest rate hikes in 2023. Its chairman, Jerome Powell, said that significant further progress would be required to begin reducing interest rates.

Two-thirds of workers reported that employers encouraged employee vaccination, and half reported being provided with paid leave for vaccination or recovery from side effects. In June, 25 states discontinued pandemic-related additional unemployment benefits, arguing that the extra money was keeping people from seeking work. In this month, 850,000 new jobs were created in the economy, and the unemployment rate, after 5.8% in May, stood at 5.9%. Third Quarter. Finally, it's infrastructure time

July: The prolonged COVID-19 pandemic left concerns about whether economic recovery would continue for the rest of the year, leading to volatility.

The US stock market ended the month with gains, as did stock indices in the UK and Europe.

Regulatory crackdowns in China severely hit Chinese stocks listed in the US. Shares of Didi Global (NYSE:DIDI), listed on the New York Stock Exchange, fell 27% for the month.

The Fed stated after its July meeting that there was progress in the economy. However, it kept asset purchase volumes unchanged, stating that it was appropriate to maintain the current target range for the rate until labor market conditions improved.

After moving sideways since May, Bitcoin, failing to break above $41,000 after a couple of attempts, ended the month at $41,490.

The US Senate began debating a $1 trillion infrastructure bill, including funds for bridges, roads, railways, and ports, as well as for the development of broadband internet and clean energy projects.

August: The technology sector contributed to the rise of the US stock market to new highs. Powell made dovish comments at the Jackson Hole symposium but also said that bond purchases could be tapered by the end of 2021.

The S&P 500 index rose for the seventh consecutive month, gaining 3%, Nasdaq 100 rose by 4%, and the Dow rose by over 1%. This happened against the backdrop of supply chain issues, inflation concerns, the spread of the delta variant of COVID-19, and labor shortages.

WTI oil prices fell by 7% in August—the worst month since October 2020—as demand concerns intensified after Hurricane Ida caused the closure of oil refineries in the US.

The US dollar reached a new high for 2021 in August, testing the level of 93.73, before quickly retreating for the remainder of the month. However, this decline was not enough to push it into negative territory. By the end of August, it had risen by more than half a percent.

After breaking through at the end of July, Bitcoin gained momentum in August, ending the month with a rise of more than 13%.

The Senate passed an infrastructure spending bill but not without serious debates about whether to combine it with a larger social spending bill. The House of Representatives only passed it in November.

September: September saw a sell-off in the US stock market, erasing the gains of the previous month and adhering to the usual seasonal decline in September. The S&P 500 fell by 4.8%, Nasdaq 100 closed down by over 5%, and the Dow ended the month down by 4.2%.

Most FAANG stocks fell in September: Meta (formerly known as Facebook; NASDAQ: FB) fell by over 10%, Amazon by over 5%, Apple (NASDAQ: AAPL) by 6.8%, and Google (NASDAQ: GOOGL) by over 7%. An exception was Netflix (NASDAQ: NFLX), which gained over 7% for the month. The energy sector rose by 9% after a sharp increase in oil and natural gas prices.

China's real estate market and bondholders of Evergrande (HK: 3333) faced serious concerns after the real estate firm ran out of cash due to mounting debts, and this issue remains unresolved. China also continued to implement stricter regulatory reforms, posing another problem for investors.

At the Federal Open Market Committee meeting, Powell said that the reduction of bond purchases could begin as early as November. He also said that a rate hike would not begin until the tapering was completed.

The promising start of September for Bitcoin was short-lived as it failed to surpass the $53,000 level and fell by 7% for the month. Fourth Quarter: Focus shifts to inflation

October: The stock market began the fourth quarter on the front foot as investors awaited the US quarterly earnings season to understand how companies were coping with rising costs.

Corporate America responded appropriately, showing the highest quarterly profit in over a decade.

Concerns that cost increases due to supply chain disruptions would hostage profitability quickly dissipated as firms were able to pass on cost increases to consumers.

The S&P 500, Dow Jones, Nasdaq, and Russell 2000 indices reached record highs. Tesla was one of the standout performers of the month, gaining 44% on its way to a record high.

Bitcoin soared to record highs as the rest of the investment world welcomed the onset of the "coming-of-age" moment for the popular cryptocurrency: a Bitcoin futures exchange-traded fund.

The US Securities and Exchange Commission approved the ProShares Bitcoin Strategy ETF (NYSE: BITO).

The traditional rally in Bitcoin and stocks in the fourth quarter seemed assured.

However, the bond market tempered its optimism as the yield curve continued to flatten—a traditional harbinger of "end times."

November: Investors were reminded that the pandemic remained a major market risk as a new strain emerged in South Africa. Armed with numerous mutations and evading the most effective vaccines, Omicron caused a shockwave across the markets.

Soon, Europe found itself under siege. COVID-19 lockdowns in some parts of Europe became fashionable again.

As investors awaited additional data to assess the threat posed by Omicron, they were confronted with yet another negative surprise: the "Powell pivot."

Powell's testimony to Congress proved to be a monumental moment for monetary policy. Against the backdrop of the highest inflation in the US in three decades, Powell stated that it was time to remove the word "transitory" from our inflation lexicon.

The Fed Chair indicated that the pace of bond purchase tapering would be accelerated to make room for rate hikes.

For the first time in a long while, investors were forced to take off their "rose-colored glasses." And they didn't like the uncertainty that lay ahead.

"Is the Fed rate dead?" "How far behind is the Fed from the curve?" "How many rate hikes will the Fed need to catch up, and could this lead to a recession as the impact of Omicron threatens economic recovery?"

Investors didn't wait for answers, and soon the market was engulfed in uncertainty, dealing a blow to risk appetites.

The Bank of England once again played its role as the "unreliable friend." It unexpectedly kept monetary policy unchanged.

December: The last month of the year was characterized by sharp swings in both directions as investors began the countdown to the Fed's final monetary policy meeting of the year, betting that the Fed would double the pace of its bond purchases tapering to $30 billion per month.

The consensus on rate hikes was not as unanimous, with some expecting two rate hikes in 2022, while others anticipated only one.

The Fed delivered a hawkish surprise: its members forecasted 3 rate hikes in 2022, followed by another 3 in 2023.

At the press conference following the monetary policy statement, Powell arguably gave his best answers on monetary policy during his tenure as Fed Chair.

The Fed Chair acknowledged the inflation threat but also reassured the market that the economy was strong enough to handle the Fed's tightening plan.

The market rallied, and technology companies demonstrated strong growth after the Fed meeting. Once again, the talk of "evaluating Apple at $3 trillion" was on the agenda. Some on Wall Street even hoped that the "Santa Claus rally" would manifest later.

But the positive sentiment quickly dissipated as the economic threat of Omicron loomed in the background.

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