"Beyond this place of wrath and tears
Looms but the Horror of the shade,
And yet the menace of the years
Finds and shall find me unafraid.
It matters not how strait the gate
How charged with punishments the scroll,
I am the master of my fate,
I am the captain of my soul."
- William Ernest Henley, 1888
The Persistence of Memory
Rise and shine. It's the last trading session of the year. The last calendar day of 2021.
It was the year that the economy rebounded with some vigor from the depths of a still-ongoing global pandemic. It was the year that stocks, for the most part, continued what is now a fantastic three-year run. As long as one can stand a stray off-year here or there, this "run for the roses" goes back far more than three years. Starting with 2003, which was the year that large-cap equity markets put an end to a three-year losing streak, the S&P 500 has posted 12 -- yes, twelve -- years of double-digit (10%+) gains in percentage terms and just one lone year of a double-digit decline. That year was, however, a doozy. The S&P 500 surrendered 38% of its value in 2008.
Looking broadly at my page of numbers, I see that the Dow Transports will likely bring home the title of best-performing domestic equity index, up 31% year to date with just this one session to go. The Nasdaq 100, up 27%, will finish in second place, with the S&P 500 (+25%), S&P Midcap 400 (+23%) and Nasdaq Composite (+22%) all close behind.
How did the small-caps do this year? Well, you tell me. The S&P SmallCap 600 stands up 25% for 2021, while the Russell 2000 has increased "only" 13%. So, you can say "well" in the broad sense, but depending on how you follow smaller-cap-size public companies, they either performed with the market or under-performed significantly.
As for sector performance, there were no real laggards. Using S&P sector-select SPDR ETFs as proxies, Energy (XLE) easily led the way, up 53% this year. (Don't tell the folks in DC, but within the sector, the Dow Jones US Coal Total Stock Market Index stands up 138% this year.) The REITs (XLRE) are up 45% this year. They might be boring, they might not be so much fun to write or read about, but they did pay the bills in 2021. The Technology sector (XLK) finished in third, which is two places below that sector's usual perch. Still, the ETF ran 35% this year. Not exactly awful. Semiconductors, though mired in a global shortage, have all the pricing power in the world and significantly outperformed Software for the year, led by Nvidia (NVDA) , up 127%, ON Semiconductor (ON) , up 106%, and Marvell Technology (MRVL) , up 84%. Thought you would see Advanced Micro Devices (AMD) up here with the big kids? Not with a paltry year-to-date performance of up just 58%, you don't.
Who's in the cellar this year? Communication Services (XLC) and Utilities (XLU) both gained just 17% this year, finishing in ninth and 10th place of our 11 sectors. It was Consumer Staples (XLP) that could "only" put together a gain of 16% this year. Just 16%?
Three cheers for the policy makers who so obscured free market price discovery as to allow us to recover much more easily than we ever would have thought in our youth when we make mistakes. Three cheers for easy money and a highly liquid environment. How long can that go on? The very thought places in my mind a piece of art -- a painting by Salvador Dali, "The Persistence of Memory." I'll leave that thought right there, as policy once again will try to go where it should in 2022, but will it? Can it? Or will time melt just a little more as traders forget in order to adapt.
So, it is now that I raise my glass of oat milk (It is 04:00 Friday) and bid the year 2021 adieu. We'll miss you as we miss all past years that we have successfully survived. We may not miss everything about you, though.
We will not miss the absurdity of the "meme" stocks, driven one way by short sellers and another by the masses, with no regard for corporate performance. One benefit worth keeping, though, was the retail participation and the change that this mania wrought. It is a new kind of respect that the arrogant must now pay the unwashed, even tracking their online commentary.
We may or may not miss the mainstream interest in cryptocurrencies, depending on how we are positioned.... or should I say we won't miss the speculative interest in cryptocurrencies that goes well beyond the perceived quality of the top few tokens in terms of market cap. Do I dare even mention NFTs, aka non-fungible tokens? Artwork has always been around, so yes, this is a valid asset class. How to value it, I think, would be in the eye of the beholder more than anything else. What is a Brian Leetch rookie card worth. I have eight of them. Good thing I have always liked Brian Leetch.
We welcome the increased interest in private companies "going public." There were more than 400 traditional initial public offerings (IPOs) and more than 600 special purpose acquisition company (SPAC) deals in 2021. Many of these names have peaked and are trading well off of their highs, or even below their IPO prices. We will not miss watching them eat each other. Cannibalization? In a way, yes. Many of these money-losing companies, dependent upon an idea and some growth, have robbed each other of what might have been share price appreciation as there have been so many holes available in which to bury investment dollars.
Don't worry. According to The Wall Street Journal there are still more than 900 private companies valued at more than $1 billion currently being looked at by gravy-hungry investment bankers and hundreds of blank-check companies seeking targets. Maybe, if those valuations can stand up, some of the higher-quality names can follow the example of Roblox Corp. (RBLX) and go public through a Direct Public Offering, bypassing everyone.
We may not miss the increased volume across options markets. According to the CBOE, the daily average notional value of traded single-stock options has exceeded $467 billion, which compares to $410 billion for equities. This will be the first time ever that options-related market activity exceeds that of their underlying stocks. We love the flexibility that liquid options markets provide. We definitely will not miss the ability of options market price discovery to force an excess in equity market price discovery that has nothing to do with anything beyond market makers being forced to protect themselves.
We won't miss the ongoing battle between consumer-level inflation, economic growth, the velocity of money and the slope of the US Treasury yield curve, primarily because "they" are still writing that story.
So, yes, goodbye to you, 2021. Another year that the Mets and Jets were losers. Another year that I fell further behind my personal bests for the mile, and on the bench. Another year that somehow, by the grace of a merciful God, I finished healthy and successfully supported my family, which is the only thing that really counts.
Maybe, despite all that I or we think we have to complain about, we have a lot more to celebrate. To be grateful for. Maybe 2022 will turn out much better or much worse. Some may not complete another lap around the sun. No guarantees. Maybe, though, we can learn how to love. Maybe we can forget how to hate. "Maybe" is really up to us. Everyone of us.
Happy New Year, Gang.
Economics (All Times Eastern)
No significant domestic macroeconomic data-points scheduled for release.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly financial scheduled for release.