2021 was a remarkable year and proved very beneficial to global stocks. In the US, the combination of government fiscal and monetary support, coupled with a recovering economy, an improved employment picture, pent-up consumer demand, and ultimately strong corporate profitability was a potent mixture supportive of markets.
The Standard and Poor’s (S&P) 500 index returned 28.7% last year. The dominant US market-proxy index, heavily weighted towards a handful of stocks such as Microsoft (MSFT), Meta Platforms (FB), Alphabet (GOOG), Apple (AAPL) etc. outperformed most other global large-cap stock indexes. This cohort of companies has provided outsized returns over the past number of years, given their dominant market share and profitability, and their shares have been purchased and held by institutional and retail investors alike.
The retail investor class asserted itself as a major factor in markets as meme stock investing became frontpage news. These trading behaviors were influenced by aggregate investor emotion much more than underlying fundamentals.