2021 has been a spectacular year for global equities. Not only have stocks risen, but the gains seen have doubled and even tripled the historical average returns of stock indices.
The US stock market has approached a profitability of 30%, the European around 20% and, our Ibex, in the last sessions has managed to fix the year ending with a rise of 8%.
The world economy and equities have gone hand in hand This year, thanks to advances in vaccination and strong political support, economic activity and employment indicators have continued to strengthen. The sectors most affected by the pandemic have improved in recent months, but are still affected by COVID-19.
We review what has happened to world markets in 2021.
United States breaking all-time highs
The S & P500 has flown this year, up 27% and it has reached all-time highs, staying close to 4,800 points. The main key that explains this stock market boom comes from the increase in its profits by 39% during this period that ended with the third quarter of 2021.
Public spending, vaccination in developed countries and the intervention of the Federal Reserve with interest rates on the floor and $ 120 billion in monthly bond purchases have been a sufficient catalyst to face skyrocketing inflation (November data at 6.8% over the last 12 months, the largest increase since the period which ended in June 1982), problems arising from supply chain interruptions, labor shortages, and the delta and Omicron variant.
As a curiosity, the S & P500 has managed to beat the Nasdaq Composite technology stock index which has added a rise of 23%. It is not a worrying figure because in 2020, the Nasdaq rose 44%, while the S&P 500 rose only 16%. From the end of 2016 to the end of 2020, the Nasdaq has gained every year, increasing a total of 139% compared to the 68% increase for the S&P 500.
First, you have to understand the reality of both indices. The seven companies with the most important weights in the S&P 500 (Apple, Microsoft, Alphabet, Amazon, Tesla, Meta and Nvidia) now represent about 27% of the index. They are also the largest components of the Nasdaq, which is the main reason the growth of the two indices this year is separated by only a few percentage points.
Second, the Nasdaq’s main problem has been the collapse of the value of companies that reached a huge market capitalization in 2020, just to see investors turn against them this year. This is the case of Zoom or Platoon, which have fallen by 45% and 76% respectively.
The energy sector leads the increases thanks to oil
Energy stocks are on their way to their best year in more than three decades, rising more than 47% in the year, 20 percentage points more than the US stock market. Crude prices have risen about 60% this year as the outlook for demand continues to improve with the economic reopening.
Within the energy sector, the one who has led the increases has been the subsector of Oil and Gas Exploration and Production with an increase of 83.7%.
And it is that we remember that this year oil has soared 55% and a barrel of brent reached 86.40 dollars in October.
We find that world demand for oil has been rapidly recovering towards pre-pandemic levels due to the widespread vaccination in the most oil and gas consuming economies. Consumption of all refined products, except jet fuel, has effectively returned to pre-pandemic levels.
In parallel, world prices of raw materials, including those used as fuel for power generation, such as coal and gas, have also skyrocketed. Consequently, by substitution effect, oil appears as an attractive product to generate energy and keep economic activity stable, which is why higher demand is driving crude markets up.
By OPEC + has been firm with its cuts to refine crude inventories, although it has promised to return more retained supplies to the market to keep up with demand.
Outstanding Europe … except the Ibex
In Europe, the selective Stoxx 600 has had a great performance with a rise of 22% and surpassing all-time highs, reaching 490 points. It has achieved the seventh consecutive quarter with increases, longest winning streak since 1998.
We must specifically highlight the French stock market, the Cac 40, with a rise of 30% and beating all-time highs. The justification behind this boom is found in industrial and cyclical companies and, also, high-margin growth companies in the areas of technology and consumption. Luxury consumer discretionary companies such as LVMH, Kering and l’Oréal have staged a profitability rally in 2021.
France has benefited from improvements in competitiveness because a comprehensive reform program has been carried out to improve the labor market, the educational system and a greater attractiveness to business taxation.
Among so many climbs … Spain and its Ibex 35 have been left behind.
The Ibex closes the year with an increase of 8%It would be a good figure if we did not compare ourselves with the rest of the bags. And it is that the comparisons are odious, we are the most lagged stock market in Europe in 2021.
His explanation is multiple. To begin with, we have composition factors of the index itself by the lack of companies in the new economy and also due to the sectors linked to tourism, they have not stood out in this year of recovery.
If we go further, the government has had its share of responsibility for the Ibex to be a caboose among the European indices. Especially if we refer to the electricity sector, its multiple lurchings during this year and changes in regulation promoted by the Government to try to curb the excess in the remuneration of hydraulic and nuclear energy sources have penalized electricity companies on the stock market. Iberdrola has lost 7.5%.
On the other hand, the growth expectations of the Spanish economy have collapsed and the fiscal twist to companies with the Google Tax, the tax on sugary drinks, the Tobin Tax and the green tax.
Source: El Blog Salmón by www.elblogsalmon.com.
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