2021 Stock Market Review + 2022 Predictions

Speaker 1 (00:03):

Welcome to the Retirement Power Hour podcast, where you'll hear direct financial insights from financial planner, writer, and consultant Joe Allaria, as he and his guests uncover key wealth management strategies to help listeners invest wiser and retire better. Now here's your host, Joe Allaria.

Speaker 2 (00:25):

Welcome everyone to the Retirement Power Hour podcast. My name is Joe Allaria, I'll be your host for the show. And this is episode one. I am very excited to get started. I've been looking forward to launching this podcast, and thank you for listening. We've got a great topic for the very first show. Today we're gonna be talking about what happened in the market in 2021 and what people think is going to happen in 2022, but probably most importantly, whether or not you, the listeners, should actually be paying attention to those predictions. But first, I want to take a moment because this is episode one, and share just a little bit more about what this podcast will be about. And in addition to being the host of this show, I'm also a partner and wealth advisor of Carson Allaria Wealth Management. We are an independent registered investment advisory firm located in Glen Carbon, Illinois.

Speaker 2 (01:19):

And we work with clients primarily that are 50 years of age and older looking to retire, but also with other high income professionals that are on their way there. So on this podcast, we're gonna cover many of the financial issues that our clients and those in similar situations have faced and will face along the way. And that means we'll talk about investing, retirement, behavioral finance, Medicare, social security, insurance, taxes, and a lot more. And the end goal is to help our listeners invest wiser and retire better. Now, what does that mean? Well, I think retiring better can mean different things for everyone. It might mean retiring sooner. It might mean retiring with less stress. It might simply mean retiring with a better plan that will give you more confidence to do the things that truly mean something to you in retirement. But whatever it means for you to retire better, our goal is to help you move the needle in that direction.

Speaker 2 (02:19):

So with that, let me introduce our first episode and our first guest, I'll be joined by fellow Wealth Advisor Jay Waters. And as I mentioned, we'll not only be discussing what happened in 2021 in the stock market and what we think will happen or what people think will happen in 2022, but also how wrong the 2021 predictions were, uh, and the ridiculousness of these annual market predictions and how they really end up hurting investors in the long run. So with that, I hope you enjoy this episode, the very first episode of the Retirement Power Hour. So Jay Waters, welcome to the show.

Speaker 3 (02:57):

Yep, Joe, thanks for having me. I'm looking forward to our discussion today,

Speaker 2 (03:01):

This time of year, Jay. Every January we always have the so-called market experts that are coming out and they're making these predictions for what the market's gonna do in the next 12 months. And not only the market, but may maybe the economy. And I, I'm telling you, every year, this is one of my favorite topics to cover every single year, Jay, because of how entertaining it is for me to go back and to share the information to clients about how wrong these predictions are every single year. And despite a an abysmal track record, these same people come out and continue to make predictions even after they are wildly inaccurate year after year. Why, why did they do this, Jay?

Speaker 3 (03:48):

Well, it's, it's one of those where I think they make those predictions or, or try to make those predictions. 'cause they'll be able to look back and say, Hey, I called the 2000 2001 market crash 2008 market crash, and now the, you know, the crash from 20 months ago. So then they can sell their books.

Speaker 2 (04:05):

Yeah, I guess all it, I guess it just takes one time being right to, to call yourself a guru and and to label yourself, quote, the person that called the the 2020 market crash, or the person that called the 2008 market crash, which I had. I I, I think there are probably still people out there today. They, they get introduced as the guy that called the 2008, you know, financial crisis. Yeah. You know, that was, uh, that was going on 14 years ago. So, uh, I, I guess you're right, if you can call it once. And, and the thing is, the funny thing about this is that, you know, if I call for a, a market crash every year, eventually I'm gonna be right. Right? I mean, so how many times do I actually have to do that before I'm right? Probably not very many.

Speaker 3 (04:51):

Seven or eight times probably. And you'll, you'll get it, right? So,

Speaker 2 (04:55):

But as we said, these people come out and do this all the time, every year, every January. So I've kind of turned it into a little bit of a fun thing, Jay, where again, we look back and we actually compare and kudos to the people that make these predictions, um, that actually leave their predictions up on the internet because then we can go back and look at them. But at this point, I keep track of the predictions every single year. So we don't really need to go back and see what the predictions were. Uh, we can just look and see what actually happened. But I just find this odd too, Jay, because in 2020 we all remember what happened in the market, you know, and, and we saw so many predictions in January like we do every year. But the thing about it was we saw more predictions after the pandemic, and that was on why or what the market was gonna do in its recovery and how it would recover. And those adjusted predictions were almost, they they definitely were, they were, they were much worse than, you know, and much more inaccurate than the regular predictions on the year to year basis.

Speaker 3 (06:03):

Yeah. Some, some of those that articles that came out are different people making projections. It was one of those where they came out with two or three different projections based off of pre covid, post covid, and then at the end of the year, um, so yeah, it's, there was lots of predictions and different changes throughout 2020 that, that people made.

Speaker 2 (06:20):

Now not, I don't wanna be too hard on 'em. 'cause I, I I guess that people feel when you're in the financial environment, you have to make predictions. Maybe, you know, it's expected. People, people still look to us at times, you know, and ask me, Jay, you know, so what do you think the market's gonna do? And I appreciate that confidence. That means a lot that they would ask me and that they would actually would care. But I have, I mean, my, my answer probably falls short, but we are kind of picking on a few people here today. But, but it's, it's not because they're wrong, that's not the point. It's because they continue to make predictions as if they think they're gonna be right, or, or that people will think they're gonna be right. It's not the fact their predictions are wrong. If I made a prediction, it's, it's probably gonna be wrong.

Speaker 2 (07:07):

But I think that we know enough to not make the predictions because no one can tell. But the problem, and we'll talk more about this, Jay, is it actually ends up hurting investors because they, they actually make real decisions. Anyone can just make a prediction. And if I thought, well, there's no consequences for my predictions, then who cares? And I'll make a prediction, who cares? But I don't do that because the problem is people, real people with real money, you know, your next door neighbors, your, your, your family members, your friends, they're, they're going to make decisions based on these predictions that are going out because they think the people making the predictions actually know what's gonna happen. And the truth is, they don't, they don't know what's gonna happen.

Speaker 3 (07:50):

It's all types of different people that, you know, listen to these people making the predictions. It could be the person that's just retired, the person that's getting ready to retire, or it could even be young investors, people in their early twenties, late twenties, early thirties, where it affects everyone, one for as they're making that transition into retirement, but also people that have 20, 30 years to invest and, you know, they may jump out or, or go super bullish or, or do whatever the predictor is saying, right. And, uh, it could steer them down the wrong path and really affect their long-term financial plan.

Speaker 2 (08:26):

Another reason 2020 was bad because you could basically pick any stock you wanted after the crash. Right? And you, you're

Speaker 3 (08:34):

A genius.

Speaker 2 (08:34):

Yeah. <laugh> and you're a genius, you know, but <laugh>, but what happened was, if you actually monitored the broad market after a while you thought, gosh, this stock didn't actually do that much better than the broad market. But people didn't do that. They just picked their stock. Right. You remember the Robinhood was kind of blown up, I think the end of 2020. And, you know, there were some of those little kind of unique stocks, a MC and, but still I heard it, I heard it outside my house. I heard it, you know, from, you know, from my neighbors, from my friends, oh, I bought this stock. It's up in 2020, was really not good for investors for that reason as well. But let's, let's jump in and let's talk about, 'cause we, we were gonna go through a market review of 2021. So let's just talk a little bit about what actually happened and then we'll, we'll compare and we'll see, you know, what, what were the predictions? But let's first talk about what, what actually happened in 2021. And I think the, the most shocking thing for me is just what the s and p 500 did again, and I don't know if I should be shocked about it or not Jay, but 27%, uh, approximately up in 2021 after the pandemic, after the year 2020. That was I think one of the most surprising things. What about you? Were you surprised by that?

Speaker 3 (09:51):

Again, I was surprised, but you know, should we be surprised? Who knows? Because we never know what the market's gonna do,

Speaker 2 (09:58):

<laugh>. That's right. That's why we don't make

Speaker 3 (09:59):

Predictions. We fallen <laugh> where, I mean, I think, you know, in what, 2020 even with all of it, I think the market after crash, I think the market was still up 16 or 17%. And then you carry it into 2021 and you see a a 27% return. It's, yeah, I mean it's, it was shocking. But I guess we shouldn't have been shocked. You know, you, you never know. Right.

Speaker 2 (10:20):

That's a great point. I mean, that's literally the reason, like we said, why we don't try to make predictions. Because in the short run, I think the stock market is an illogical system in the short run. Meaning that there are things that happen that really don't make sense, you know, that you really can't explain all the time in the short run, I think in the long run it becomes much more logical. But people make, they try to take logical arguments to predict what the market's gonna do in the short run. And it, and that's why we see people be wrong time and time and time again. 'cause it's in the short run, the market is just illogical. Like in 2020 when you had the market recovering in a v-shaped recovery, like many people said would not happen. But yet we had unemployment still at extremely high rates.

Speaker 2 (11:04):

The economy was, you know, shut down essentially. But yet, you know, we had stocks coming back just roaring back. I mean, that didn't make a lot of sense, but it was happening. And so if you would've, if you would've taken your money out, which, you know, we have talked to people that have done this, you know, they, they took their money out either at the bottom or, or once their money came back and they took their money out. Well, they missed the rest of the uptick in 2020 and they missed 27% in the s and p 500 in 2021. And that is, that is tough, a tough pill to swallow. We all know it's tough to see your money decline in value 30, 30, 40%. I mean, I think it's equally as bad, if not worse, to be on the sideline and to see the market come up. Because at least when the market comes down, Jay, in my mind, I think, well, it'll come back and then I'll get my value back. Would you agree? I mean, what's the market? Yeah.

Speaker 3 (11:58):

When you, when you're sitting on the sidelines like that, it's, there's no getting that missed opportunity that those missed returns out. You just, right.

Speaker 2 (12:05):

How do you get that back? How do you get that back? I, you just,

Speaker 3 (12:08):

And I think what it leads to and what it just really shows is, you know, when you look at these short term intervals, you need to always look at the big picture. And it's, you know, it's time and time again. Everyone's heard the saying, but it's, you know, time in the market, not timing the market, right? Because there's multiple points last year where people tried to time the market, whether it was at the end of 2019, they said, okay, you know, priced earnings so way overinflated, I'm gonna go ahead and jump out. Or it was, okay, I'm gonna jump out in the middle of covid, or I'm gonna jump out afterwards, now I'm gonna jump back in. There's too much jumping in and out. And again, it's just, if you stay in the market long term, as you can see, right, it's much more efficient than time trying to time the market.

Speaker 2 (12:50):

So, so 2021 capped off Jay the best three years in the s and p 500, since 1996 through 1999, there were 68 highs, 68 record highs for the s and p 500 in 2021. That was second most all time behind 1995. So, I mean, when we say things like that, it, it doesn't seem real, but that's, that's what happened. Other, other stock indexes were up as well. Dow Jones was up about 19%. The NASDAQ was up about 21% in 2021. But the, the, the best performing sector of all wasn't any of those. It was actually small cap value stocks, which earned over 31% in 2021, which really rounded out a, a strong performance of stocks almost, you know, nearly across the board. But there were a couple sectors that that didn't have a positive year. So one of 'em was emerging markets, another one was small growth, international stocks did, did well with the double digit returns, but not quite as well as US stocks, which some may look and, and, you know, be surprised at that, given the incredible, the incredible run we had in US stocks from 2010 to 2020, really?

Speaker 2 (14:04):

2009 through 2020. But US stocks did it again in 2021. Uh, volatility Jay was something that, believe it or not, it, it was not a theme of 2021 and, uh, that a lot of people thought it would be, and we'll talk about that in a minute. But there were the average daily move, average daily move of the s and p 500, how much the market moved each day was only about 0.53% compared to the historical average of about 0.76%. So volatility as a whole was, was lower on average. And then there were, there were five days where the market moved over 2%, 2% or more compared to the average over, if you look the last 10 years, the average was about nine days per year where the, the s and p moved 2% or more. So just, just some, some interesting things. And I think, um, you know, some other themes that, that we certainly saw were supply chain challenges.

Speaker 2 (15:03):

And I think we're still dealing with those. That's gonna be a 2022 theme. Hopefully not too long, but we definitely are seeing it labor shortages where you just can't find people to work earnings, you know, earnings were strong, which was a bit of, of a surprise in 2021. Like we kind of just talked about with returns. We talked about that stimulus and um, that was certainly a theme. And then, and inflation and inflation was probably the biggest thing. If I said to a, if I asked a, a room of a hundred people, what was the theme of 2021? I think my opinion, Jay, is that they would probably talk about inflation. Would you agree?

Speaker 3 (15:40):

Yeah. Majority of people are, are, will definitely talk about inflation just, and you saw it all over the place with housing prices, food benefits going up on social security side, Medicare going up, everything like that. You saw it across the board last year on inflation. And it's one of those where with a lot of the people we talk to, it's, hey, you know, they, they got an increase in their social security benefit, but a lot of people are go, well, my Medicare part B went

Speaker 2 (16:05):

Up. I mean that's, you know,

Speaker 3 (16:06):

So they just, it just turned right around and it just, you know, went in one pocket, went right out the other. Right. And, uh,

Speaker 2 (16:11):

And, and and Medicare, that's about a, that's 14, 15% almost in an increase mean that that's, that is notable, you know, not in a good way. Yeah,

Speaker 3 (16:20):

No, it, it was a significant increase.

Speaker 2 (16:23):

Numbers just came out. Inflation jumped 7% in 2021, the highest rate of increase since 1982. Some think that that's gonna continue, but we'll talk about that in a minute. I wanna go back and talk about the predictions of 2021. 'cause we talked about what actually happened. So, you know, just real quickly, Jay, multiple financial institutions were calling for increased volatility. So what was the actual result? Low volatility. And we're gonna, we got a blog post that's gonna be going out on this. So you can click the links and you can see what, what institutions were talking about and the title of the article or you know, a headline of the article was, buckle up significantly more volatility coming in 2021 and what happened? Low volatility, multiple institutions, you know, tried as they all do, they try to tell you where the s and p 500 is gonna finish the year.

Speaker 2 (17:09):

We've got multiple that missed their mark by eight to 10%. Um, you know, BCA research said that foreign stocks were gonna outperform US stocks. They didn't, we talked about that. It, it really wasn't even close. Wells Fargo called for small caps to outperform large caps. You know, we did talk about small cap value J but what we didn't say that was the huge difference between small value and small growth. Small growth had a negative year and small value was the top performing sector. So I mean, two things. Number one, that prediction was wrong because then that that just drug small cap stocks down and, and they didn't outperform large caps. The other thing is diversification. This is why we don't try and predict year to year what's gonna be the best. If there's that much of a difference between small value and small growth, anything can really happen. That's why we want to be diversified and not try to pick the best performing sector because we definitely don't wanna miss out on 31 plus percent. And we just, like, we, this whole theme of this whole broadcast is we don't know what's gonna happen. And so trying to pick the best one is, is not a good, not not gonna be a good practice.

Speaker 3 (18:17):

There's a big gap there. I mean, when you really look at it and look at small value too small growth and you know, we don't, obviously we don't wanna predict making things like that, but when they make the blanket statements of, you know, hey, small is gonna outperform large, well, okay, let's dive into that and say, okay, what actually is small? And when you make those blanket statements

Speaker 2 (18:37):

Right,

Speaker 3 (18:37):

It leaves people to assume without the proper diversification, they may just all put it in growth or they may just all put it in value. Yep. Plus's a 30% difference there between if you're just in one category over the other.

Speaker 2 (18:48):

And that's, that's why we're talking about this again. And that's such a good point you just made. It's, again, it's easy to, to throw stones from the audience here like we're doing and, and to look backwards and pick out where people are wrong. But that's not the problem. The problem is not the people making predictions. The problem is what happens as a result of those predictions and, and this broadcast, this show is primarily for our clients. I love when other people listen and all that and that's great, but this is primarily for our clients and you can't get enough of what we're telling you right now and to reinforce good investor behavior and that's why we do this, you know, so that our clients have that opportunity. You just can't get enough reinforcement of these ideas and that you can't predict the market, don't try to time it. And so that, that's the real reason. That's why we're being so hard on these, these predictors and these, these, uh, future seers <laugh>, yeah. In quotations.

Speaker 3 (19:42):

There's so, yeah, there's just, there's so much outside noise, especially in today's environment, the media, how quick, you know, news spreads where you just gotta make sure to ignore all that outside noise because it leads to making mistakes like that on jumping in certain categories or listen to what they say and just, you know, stay the course, right? That's really what it leads down to.

Speaker 2 (20:02):

So quickly here on predictions for 2022, we've got some people, and again, we've got a blog post. You can, uh, you can look at the show notes or go to our website, carson Allaria.com and pull up the blog, which has links to all of these things that we're not making these things up. We put the links so you could see 'em. Um, I hesitate to put the links 'cause it, it just, it gives more validity in my mind to these predictions. And I don't want you guys really going to these pages and listening, but, but, um, we put 'em there so, you know, we're not making it up, but some people predicted that 2022 will be a volatile year. Not shocking Jay. I think that just has become the default prediction when you don't know what to make as your prediction, but you know, you have to make a prediction because you're Goldman Sachs or you know, bank of America and you, and you just have to make a prediction, right, because you're in the financial business and that's just what you do.

Speaker 2 (20:54):

If you don't know, you just say volatility. That's at least markets move up or down. <laugh> <laugh>, that's my, that's just my take. But some have predicted volatility. Others have predicted, uh, I've seen predictions anywhere from the s and p 500 being slightly negative to actually moderately positive to, to a decent, decent year in the markets. Some say small caps are gonna be in for another great year. Some say they're gonna take over leadership in returns for years to come, which, which we really haven't seen aside from 2021, really haven't seen much of that in the last five, 10 years on the inflation front. Um, the Fed has already, you know, the Fed chair, Jerome Powell has come out and said that central banks are, are prepared to raise interest rates more rapidly in order to contain inflation. So, uh, some say inflation will drop sharply in 2022, which was a little surprising.

Speaker 2 (21:44):

Others say inflation's gonna continue to be a problem. So I mean, I guess someone's gonna be right there. 'cause those are on the opposite ends of the spectrum. Uh, some people are talking about the midterm elections and how that's gonna cause volatility. But, you know, I have to give credit, at least one person has kind of said, this is all pointless. Jason Lee of Reuters has said, uh, I have been attempting to predict the future for nearly 40 years at this time of year, attempting to look a full year ahead. And it, it's, he says it's as difficult to do so if not impossible, and at times seems a bit pointless. Well, Jason, I have to agree with you on that one. It is pretty pointless, but at least you're admitting it's just something that you have to do. He's a writer. I mean, he's, that's what he gets paid to do, right?

Speaker 2 (22:22):

To, to put out articles, but at least he put that disclaimer, like we said, the, the, the bad part, Jay, is that people will, will look at these predictions and many of them will make poor decisions. That's what we're out to fight against. That's what we're out to try and prevent. And, and we don't want to, we definitely don't want our clients doing that and missing out on significant gains. I've got a, a list of predictions for 2022 here. Stocks, Jay. We think that, um, stocks will go up and they'll go down. And we think that if we look in, if we look out long term, 10, 15, 20 years, we start from today and we compare stocks to bonds to cash, we think stocks are gonna probably be the best performing asset class if we look long term. We also think that stocks, when volatility strikes, if it strikes stocks, are gonna be more affected than bonds.

Speaker 2 (23:11):

You know, and if that's something where you're retired and you need to take some money out and you, you don't wanna take as much risk, we think that bonds won't be as volatile as stocks in 2022. We think, Jay, we're predicting that cash is not gonna return more than 1% in 2022 and probably a lot less. And that's a nominal rate of return. The real rate of return when you factor in inflation, we predict is gonna be negative once again in 2022, just like it was in 2021. And I also predict that for the financial media, whether warranted or not, they're going to report on a world al altering crisis and they're gonna, or they'll make whatever the current event of the day appear to be spiraling out of control. But I predict as a society that we are going to make it through 2022 just as we have made it through every single year since the beginning of time.

Speaker 2 (24:02):

We're gonna make it through 2022. And, and I think I'm predicting that we're gonna all be here in January of 2023. Most of us, and I also predict, you know, wrapping this up here, that those with a financial plan, Jay, which we know is so important, are gonna be better equipped to sustain any tumultuous events that we might see in 2021, like we saw in 2020. I predict that those with a plan will be able to lean on that plan and their philosophy, their investment philosophy, they'll, they'll sleep better at night. They'll understand why they're invested the way they are. They'll have perspective, better perspective. And that those, lastly with a financial advisor who's committed to developing and sticking and helping them stick to that plan, I think they're gonna have a better experience overall. Does that mean they're gonna have better returns in 2022, Jay? No. Does that mean that they're gonna have, that they're gonna outperform the market? No, not necessarily, but I do think it means they're gonna have a stronger understanding of where they stand financially and if they are on track to reach their goals. How do those predictions jive with your predictions? Jay?

Speaker 3 (25:09):

I'll tell you what, with the, with those predictions, uh, I'd say you'd have a pretty good selling book. <laugh>

Speaker 2 (25:14):

<laugh>,

Speaker 3 (25:15):

I think.

Speaker 2 (25:17):

Yeah. I'm the guy that predicted that cash will not return more than 1% in 2022. That, that's got a good ring to it.

Speaker 3 (25:23):

Yep. I like it.

Speaker 2 (25:24):

So Jay, I I appreciate you, uh, taking time today and being with us and coming on for your, for your debut on the Retirement Power Hour. I hope to have you on again soon, but thanks again for, uh, joining us.

Speaker 3 (25:35):

I like it. I appreciate it, Joe, thank it was good talking today.

Speaker 2 (25:39):

All right, and for everyone else that's still listening, thank you for taking the time. We're excited about 2022 and we're excited to get this show on more platforms for clients and for others to listen to. Uh, we're gonna, as we always do, cover lots of different topics to help you. Those that are wanting to retire, those that are retired, those that are close to retirement, to help you make better decisions with your money, to help you just get any type of, uh, positive movement towards your goals that you can, because it really is in your control. And that's something that we believe there are things that we can control, and we we're focusing on those things. And the more action you take, the sooner that you take that action, more likely you're gonna be able to hit those goals. So don't worry about 2022, don't worry about it plan, but don't worry about 2022 because again, there's only so much we can control.

Speaker 2 (26:39):

Focus on those things that you can control. Don't worry about the things you can't control. Don't let those things consume your mind and your thoughts keep you up at night. If you need help, if you need someone to talk you through this, obviously feel free to reach out and we'll see if we can help you. But get a trusted advisor, uh, to help during, especially during the phase of retirement, and we can help you with any of the concerns that you're having. We don't know all the answers, and if you ask me what the market's gonna do in 2022, I'm probably gonna answer that. I don't know. But that doesn't mean that there aren't things that you can do to protect yourself and put yourself in a better position. Well, we made it, we made it through the, the first show, the first podcast of the Retirement Power Hour, even though we've been doing the Retirement Power Hour for several months. This was the first podcast. I hope you enjoyed it. And we'll be back probably on a once a month schedule, but we'll be back next month talking about more interesting topics. Until then, have a wonderful rest of your week and we look forward to talking to you soon.

Speaker 1 (27:42):

Thank you for listening to the Retirement Power Hour podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but cars Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.