2021 has been an historic year when it comes to the S&P 500 performance. From the beginning of the year to the end of October, the bellwether US index has gained almost 25% and notched up a series of new record closes.
With just two months of the year left, many investors are now looking to 2022 and asking if the stellar S&P 500 performance can continue.
There are many risks to consider – inflation, monterey policy tightening, supply chain issues, and geopolitical tensions, to name a few.
However, historical precedence indicates the extraordinary index performance could continue into 2022 and well beyond.
How many S&P record closes in 2021?
As of the end of October, the S&P 500 has recorded 59 record closes in 2021. Since 1929, there have only been three other years in which more S&P 500 record closes have been posted.
So what does history tell us about the outlook for S&P 500 performance in 2022?
With the S&P 500 now looking likely to notch up its 60th record close for the year, we looked at what happened after previous years in which 60 record closes or more have been recorded.
These years are 1964 (65 record closes), 1995 (77 record closes) and 2017 (62 record closes).
In each instance, the index recorded between 19 and 39 additional record closes the following year and remained bullish for at least another four years (until a year with zero record closes was finally recorded).
But has stimulus distorted S&P 500 performance in 2021?
While history tells us that the major US stocks in 2022 could once again perform very well, many market commentators think the bulls could be running out of steam… And stimulus.
Jim Bianco, the president of leading macro research firm, Bianco Research, outlined two key factors that could lead to stocks falling.
“What will cause the stock market to fall? Current spending bills in Washington result in less ‘mailed money’ to buy ETFs in the months to come,” he says.
“(And) inflation pushes interest rates high enough to provide a reasonable alternative to stock ETF (read: S&P 500) investing?”
Bianco notes that an extraordinary amount of money has flowed into stock market index products following the distribution of stimulus cheques in the US earlier this year.
“How significant was this money… As a result of these checks and previous stimulus efforts, government transfers hit 33% of total personal income, or about $7 trillion!”
“And this shot the savings rate to over 20% or levels that were thought not possible pre-pandemic. The current savings rate is still elevated compared to the pre-pandemic period at 9%.
“And what have Americans been doing with this money? They have been plowing it into the stock market. But in 2021 that largely means one thing, ETFs. These combined flows hit weekly records in March/April as these checks were rolling in.
“So why are stocks going up? A tidal wave of money is being directed at indexed-based investment products, like ETFs.
“They just buy S&P 500 ETFs and call it a day. As tens of billions of dollars are being directed at ETFs tied to the most popular index, the S&P 500, it forces relentless buying of these 500 stocks as the rest of the equity universe seems to languish.
So, as this stimulus dries up, only time will tell if history will repeat and the strong S&P 500 performance continues.
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