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US stocks opened near record highs on Monday, as investors took advantage of last week’s momentum until at least the first session of the new year. The S&P 500, the Dow and the Nasdaq each rose.
U.S. stocks posted another year of solid gains in 2021, rising 27% and generating a rare third consecutive annual double-digit percentage increase. Within the S&P 500, the energy and real estate sectors outperformed, gaining more than 42% each during the year for the best annual gains on record for these sectors.
Nonetheless, the strong overall rise in the blue chip index was fueled, share by share, by only a handful of mega-cap names. According to Goldman Sachs analyst David Kostin, the five largest constituents of the S&P 500 (or Facebook, Apple, Amazon, Microsoft, Google) together returned 37% last year – and now make up about 23% of the whole. of the index.
“In 2022, variables associated with earnings and valuation will determine the performance of the S&P 500 Index and its underlying constituents,” Kostin wrote in a note Monday. He expects the index to rise another roughly 7% to end 2022 at 5,100, with his outlook among several Wall Street predictions calling for a gain of over 5,000 for the S&P 500 this year.
“From a profit perspective, the deceleration in economic growth will limit sales gains for many companies. Therefore, the dispersion of equity returns will be more evident when viewed through the margin channel, ”Kostin added. “Stocks with high labor cost ratios and exposure to wage inflation are likely to underperform.”
But for the S&P 500 as a whole, a 27% rise and 29% total return last year bodes well for the period ahead. In the 71 years dating back to 1950, when the S&P 500 posted a total return of 25% or more in one year, stocks rose 82% of the time the following year, according to data from the co-chief investment officer. from Truist Advisory Services, Keith Lerner. However, the magnitude of the returns could moderate.
“I think 2022 will be a good year which tends to follow a great year,” Sam Stovall, CFRA’s chief investment strategist, told Yahoo Finance Live late last week. “We certainly have a big wall of worry that we’re going to have to work through… in terms of inflation issues, what the Fed will do with interest rates, et cetera.”
And indeed, this week, investors will be examining new economic data, including the Department of Labor’s December jobs report, to help show the relative strength of U.S. economic growth in the final weeks of the year. , as concerns about inflation and labor shortages continued to spread across the country. Risks from the latest wave of coronavirus also weigh heavily, with the labor market impacts of the Omicron variant possibly appearing in the latest monthly employment report for 2021.
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