Stocks closed a calm trading day with modest losses on Friday, even as Wall Street closed the books in another record year.
The S&P 500 finished with a gain of 26.9% for the year, for a total return of 28.7%, including dividends. That’s almost as much as the benchmark gained in 2019. The Nasdaq composite, powered by Big Tech stocks, climbed 21.4% in 2021. The Dow Jones Industrial Average gained 18.7%, with Home Depot and Microsoft in the lead.
âThis is the third consecutive year of incredible gains,â said JJ Kinahan, chief strategist at TD Ameritrade. âThe market itself was just incredibly strong. “
A wave of consumer demand fueled by reopening economies has pumped up company profits more than expected in 2021, helping to keep investors in a buying mood. Wall Street also received a boost from the Federal Reserve, which kept its short-term policy rate close to zero throughout the year. This has helped keep corporate borrowing costs low and equity valuations high. Investors expect the Fed to start raising rates next year.
There was also intense interest in âmemes stocks,â in which large groups of individual investors bought shares of struggling companies like GameStop and AMC Entertainment, causing institutional investors like hedge funds to lose billions. The soaring stock market also led to an explosion in initial public offerings, including online broker Robinhood and electric vehicle maker Rivian Automotive.
Along the way, the S&P 500 hit 70 all-time highs, its most recent Wednesday. In the post-WWII era, this is the index’s highest record since the 77 it reached in 1954.
The market has continued to reach new highs despite many challenges, including rising inflation, disruptions in the global supply chain, and outbreaks of more contagious variants of the COVID-19 virus.
âWhile there are a lot of things that people were nervous about all year round and continue to be nervous as we move towards 10 pm, at the end of the day the US (stock) market still seems to be the best game in town, âKinahan said.
Still, the rapidly spreading omicron variant and uncertainty over global supply chain disruptions remain overhangs for the year. So is the imminent end of the Federal Reserve’s easy money policies.
The central bank has announced plans to step up its reduction in monthly bond purchases, which has helped keep interest rates low. The policy change paves the way for the Fed to start raising rates as early as the first half of next year.
Trading was very slow on Friday with most of Wall Street on vacation and many fund managers have already closed their positions for 2021.
The major indices spent much of the day swinging between small gains and losses. The S&P 500 lost 12.55 points, or 0.3%, to 4,766.18. The Dow Jones slipped 59.78 points, or 0.2%, to 36,338.30. The Nasdaq lost 96.59 points, or 0.6%, to 15,644.97.
The Russell 2000 Small Business Index slipped 3.48 points, or 0.2%, to 2,245.31. The index ended the year with a gain of 13.7%.
The yield on 10-year Treasuries was flat at 1.51% after the bond market closed at 2:00 p.m. Eastern time ahead of the New Years holiday.