Looking Ahead to 2022 ― Can the S&P 500’s Rally Continue?

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

Top 20 S&P 500 Annual Price Returns (1950-Present)

Top 20 S&P 500 Annual Price Returns

Before the calendar turns, we want to take one last look at 2021. 2021 is quickly coming to an end, and investors are turning their attention toward 2022. This year has been defined by COVID cases and vaccinations, supply chain bottlenecks, labor and raw material shortages, and rising inflation. Despite 2021’s craziness, the S&P 500 has generated an impressive +26.3% price return through 12/10. Figure 1, which ranks the S&P 500’s 20 strongest years since 1950, shows 2021’s return ranks 14th highest.

You may wonder if the S&P 500’s rally can carry forward into 2022. A look back at history suggests it may. The chart plots the S&P 500’s performance during the following calendar years. Excluding 2021, the S&P 500 produced a positive return 16 out of 19 years, with an average +11.6% return. For context, the S&P 500’s average annual price return for all years since 1950 is +9.5%.

This is not to say the S&P 500 cannot trade lower during 2022, because it certainly could. However, it does indicate the S&P 500 is not destined to trade lower simply because of 2021’s strong return. Worrying and thinking this time is different from the current environment can be easy. We do not know when the pandemic will end, how severe the Omicron will be, how long inflation pressures will last, or what will happen during 2022’s midterm elections. While there are always risks to worry about, keeping the big picture in mind is essential. Right now, data indicates the U.S. economy is growing, and the recovery is progressing. In our view, it’s hard to ask for much more.

Our Insights

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Election Driven Rally Pushes US Equities Higher
Election Driven Rally Pushes US Equities Higher

Stocks traded higher this week, with most of the gains occurring after the election. The S&P 500 reached a new all-time high, nearing the key 6,000 level. The broader equity market rally was notable as investors priced in the Trump administration’s pro-growth, reflationary policies. The past few weeks have been packed with market-moving events, but the calendar is expected to settle down as we approach year-end.

Treasury Yields Rise Following the Fed’s September Rate Cut
Treasury Yields Rise Following the Fed’s September Rate Cut

Stocks finished October lower as investors navigated Q3 earnings, the upcoming election, and uncertain Federal Reserve policy. Treasury yields climbed as investors considered the possibility that the Fed may not cut interest rates as much as previously expected. Concerns about fiscal spending also drove Treasury yields higher, with expectations for continued high government spending regardless of the election outcome.

The Next Two Weeks are Filled With Market-Moving Events
The Next Two Weeks are Filled With Market-Moving Events

This week, stocks traded lower after several weeks of consistent gains. The S&P 500 dropped -0.5%, underperforming the Nasdaq 100's +0.3% gain but outperforming the Russell 2000's -2.8% return. The Magnificent 7 rose over +2%, making Growth the only factor to trade higher. The next two weeks are filled with market-moving events, and once they pass, stocks could rally into year-end.

Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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