COVID-19? More Like COVID-22.
It is hard to believe that we are still living in a pandemic. What began as “two weeks to slow the spread” has turned into two years of disruption and change. Now, the emergence of the Omicron variant has further complicated the return to normalcy.
Financial markets have fared surprisingly well since March of 2020. U.S. stocks have performed better during the pandemic than in the years prior to it (top chart). Nobody predicted this, yet there are good reasons that explain the rise in stocks and why the bull market should continue. This includes how businesses have taken advantage of the pandemic to grow profits—a focus of this report.
Despite strong performance from stocks, consumer sentiment is near record lows. Inflation, political turmoil, and the pandemic are all taking a toll on Americans. In fact, there has never been such a divergence between the stock market and consumer sentiment. The two usually move together, but even though stocks are up, Americans feel down about the economy (bottom chart).
We’re often asked: how can stocks perform so well in the face of so many difficulties? Part of the answer is that the stock market looks beyond challenges like inflation and the pandemic, even as Americans are mired in them. But the primary reason is that the market reflects the success of corporate America. Large, publicly-traded companies have prospered during the pandemic. This has driven stocks higher and should continue to do so in 2022.
In this quarter’s report, we review market performance in 2021and discuss why, in spite of the challenges, we expect 2022 to be a good year for investors.