So, 2021 ends, as it began, with headlines dominated by Covid. In between the US elected a new President, Bill and Melinda Gates got divorced, Squid Game became a global TV phenomenon, Ireland enjoyed their best-ever Olympics, whilst England and Bohemians lost cup final penalty shoot-outs. As for the markets, well it looks like they’re set to go up again, some more than others.
The first half of 2021 saw markets continue the trend that began with November 2020’s positive news-flow on vaccines, namely that re-opening trade was on with a vengeance. If you were a miner, bank or oil company, then, to paraphrase the song, you could boogie all night long, as investors sought out more cyclically exposed sectors. This was largely at the expense of defensive sectors like healthcare and consumer staples. Technology struggled to keep pace early in the year but by the mid-point its inherent strengths were once again finding favour with investors.
Nowhere was this enthusiasm for economically sensitive assets more keenly felt than in the commodities space, with the oil price gaining steadily during the first half of 2021, reaching $70 by the end of June, up from $50 at the beginning of January. Government bonds also reacted to growing concerns that stronger than expected recovery would lead to an uptick in inflation, with benchmark 10-year US Treasury yields reaching the giddy height of 1.75% at the end of March.
Even at the height of vaccine enthusiasm however Covid related concerns remained stubbornly present, which together with concerns over a potential property related slowdown in China, acted as a brake on inflation concerns and rising bond yields and commodity prices. This theme has been increasingly playing out in the second half, as the going has been progressively harder for the winners earlier in the year, whilst tech giants like Microsoft and Apple reached new record highs. Brent crude has fallen back to the $70 level from earlier highs in the mid-80s and US 10-year bonds are now back below 1.5%.
As investors’ attention turns to 2022, the ubiquitous crystal balls are once again being rolled out. Much depends on the pandemic, in the short-term at least, particularly the impact of the Omicron virus. Consensus opinion remains that for the patient investor, equities remain the asset class of choice.
The new year 2022 should at least offer some welcome distractions, anyone for Garth Brooks at Croke Park? Personally, I’ll wait for the new Fontaines DC album. Whilst waiting, in a year that saw both Paddy Moloney and Nanci Griffith pass away, their version of The Wexford Carol on The Chieftain’s “Bells of Dublin” album is worth spending a few minutes with this Christmas.
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James Buckley is a Senior Equity Research Analyst with Cantor Fitzgerald Ireland.
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