Can 2021 Stock Market Phenomena Continue Trending Upward Through 2022?

2021 was an interesting year, what with short squeezes, investors eyeballing crypto, the rise of SPACs, heightened tensions with China, increasing interest rates and real estate double-takes.  

2021 saw staggering returns in U.S. stock markets, with a third straight year of growth and double-digit gains. Markets rose more than 25% on top of their 16% gain that steamrolled during 2020. The index also hit 70 new closing highs in 2021, chasing the heights from 1995, according to the New York Times.

So, what are the signs of a bull run end? Prices of household goods, used cars, gasoline and other inflation indicators have skyrocketed. In fact, consumer prices climbed 5.7% in November 2021 compared to just one year earlier, reminding those who lived through it of the sky-high inflation of the 1980s.

Returns — and the results of unique phenomena in 2021 — may look different in 2022. Will the end of the bull run come closer and the perks (good things) that occurred in 2021 keep up in 2022? Let's explore some possibilities.

Past Short Squeezes Could Be Just That — Short-Lived

2021 was the year of the short squeeze. Short sellers zero in on a stock that they think is overvalued by the market and investors square in on stocks to sell them in the hopes of buying back the shares later on at a lower price.

Investors, hungry to take advantage of the riskier side of stocks, got a lift with meme stocks like GameStop and AMC to explosive heights in early 2021. The sky-high runs stunned traditional investors and changed how young investors play the market.

Meme stocks enjoyed a brief increase in popularity in November, then fell again. However, other larger pools on Reddit may facilitate other short squeezes. In other words, skip GME and pay attention to what's going on in other Reddit forums.

Crypto Might Have Some Hits and Misses

Cryptocurrencies have exploded over the past 10 years, particularly among younger investors. Bitcoin trades for $50,000 and trended up 60% in 2021. Ethereum has buzzed up 400% and Dogecoin is up about 3,400%. A few expert takes:

• Bitcoin: Bitcoin may top $100,000 by 2023, with some experts predicting that it may reach that goal by the end of the first quarter in 2022. Other experts expect Bitcoin to tank and wipe out the gains it has made in the past year.
• Ethereum: After its ETH 2.0 upgrade, Ethereum could jump in price, closer to $10,000 by the end of 2022.
• Binance Coin: Extreme volatility may threaten Binance Coin, but some experts believe it could cross $1,000 by the end of 2022.
• Dogecoin: Dogecoin has had its ups and downs in 2021, and by 2022, it may top $0.30.
• Solana: Solana slowly crept up in the latter half of the year, and experts believe it may top $400 in 2022.
• Shiba Inu: Shiba Inu may reach $0.00007 by the middle of the year and $0.00008 by the end of 2022.
• Cardano: Cardano grew approximately 600% and may go up to $2 during the first quarter of 2022.

SPAC Attack — or Not?

Special purpose acquisition companies, called SPACs, were supposed to usher in a new, heralded age of IPOs. SPACs, which bypass the traditional (long) path toward a public debut for companies that seek an IPO, allow companies to skip the process and merge with an existing firm. During the first quarter of 2021, SPACs made up 68.5% of all IPOs, but regulators will add accounting guidance through the Securities and Exchange Commission (SEC). 

Unfortunately, SPACs haven't actually yielded great returns for investors. Furthermore, according to some experts, a number of SPACs will become very desperate to do deals and some won't be great for investors.

Interest Rate Rises 

The Federal Reserve has already announced that in order to fight inflation, near-zero interest rates will likely come to an end. The Federal Reserve has indicated it could raise rates three times in 2022, allowing rate hikes to naturally "fix" inflation. The Federal Reserve will also taper its bond buying program next year. 

Changes to the federal funds rate will influence consumer interest rates, which means investors, businesses and consumers to change their ways and take some steam out of the stock market. (In general, when the Federal Reserve cuts interest rates, it causes the stock market to go up. On the flip side, when the Federal Reserve raises interest rates, the stock market usually goes down.)

As interest rates careen upward (albeit slowly), borrowing becomes more expensive for both consumers and companies, which can hurt earnings for companies and make stocks less attractive to investors. When it occurs, borrowing costs will still be extremely low by historical standards. Consumer demand may also take a hit because people have less to go around once their mortgage and other loan payments go up. In doing so, inflation comes back into controllable territory.

An environment of increasing rates could shift the mood for just about every investor and borrower.

Chinese Tensions

2021 was also a flabbergasting year for investors who wanted to purchase stocks of Chinese companies. As the Chinese government continues to make it more difficult for investors and companies in China, China's market performance saw its Hang Seng Index dive about 15%, signaling the tumult that could continue. The MSCI China Index ended the year 37% lower. 

Many experts and analyst ratings foretell that due to government intervention and unpredictability, it's not worth investing in Chinese stocks. On the flip side, risk takers who want to bet on China take the opposite approach: a "China on sale" mindset.

Real Estate Craze

The pandemic generated one of the most competitive housing markets in U.S. history. Home prices didn't come close to housing market predictions in 2021. The year 2021 even saw extreme sales prices in certain parts of the country. However, experts have predicted that 2022 will shift back to a seller's market in 2022, causing real estate investors to see the market turn in their favor.

Stocks in 2022: Buckle Up

2021 was an interesting year for investors. Delta and omicron didn't stymie the stock market’s rise — it seemed to recover faster and faster after every new virus strain announcement. 

No matter where and how you prefer to invest in 2022, it's likely that it won't look the same as in 2021, so get ready. It's a new year with new changes afoot.