Although there wasn't much of a hangover after new year festivities, 2021 took a while to get going, ending up with a shape much like a delayed version of 2020. There was plenty of excitement in a year that had us dodging from Omicron to opportunity.
It took until May 2021 for the ASX to top Feb 2020’s earlier all-time high, and it was up from there to August –straight gains for eleven months, in fact. With the late-in-the-year onset of Omicron and US debt hitting the ceiling, the silly season hasn't really managed to help the market break past August highs. Time will tell whether 2022 brings fresh news or is actually (don't say it aloud) '2020, too'.
With a distinct lack of drivers on the road Q2 in 2020 saw a huge demand deficit. But oil is a slippery customer, and supply has been squeezed by natural events like Hurricane Ida as well as human error like the Ever Given blocking up the Suez Canal. Meanwhile, production cuts and a price war between Saudi Arabia and Russia have temporarily steadied the (cargo) ship as we return towards our previous steady state of oil consumption.
Record highs for iron ore in May 2021 were sparked by Chinese steel production for manufacturing and construction. To curb price inflation, the Chinese government interceded by reducing steel mill output and property construction. This caused a price crash in July and a subsequent low in November. ASX heavyweights including RIO, FMG, BHP, CIA and MIN were all affected.
Earlier in 2021, inflation was dismissed as transitionary, but central banks began to take it with more than a grain of salt later in the year. With people out and about spending, it's now evident that there's still much work to be done straightening out global supply chains to keep up with demand. Stimulus is being rolled back and interest rates are creeping back up to reduce rampant borrowing. While tech, healthcare and small caps are looking a little concerned, oil, gas and gold are laughing all the way to the central banks
Speaking of banks, the S&P/ASX Banks Index lifted 28% from 21 December 2020, while by comparison the S&P/ASX All Australian 200 rose 9%. So while banks managed to sailing through most of the year from a low base, they were dragged down by Westpac (ASX:WBC) and Commonwealth Bank (ASX:CBA) after lacklustre annual results – in both cases due to increased cost pressure on net interest margin offsetting good cashflow. The Banks Index had dropped 10% by the start of December.
Analysts including Morgan Stanley and Goldman Sachs have downgraded key banks after increasing competition in the home lending and SME lending space, dragging down some of the smaller players including Bendigo Bank (ASX:BEN) and Bank of Queensland (ASX:BOQ).
After a volatile year for all with the unpredictability of COVID and its variants, travel stocks had one of the bumpiest rides. Hanging off every word of state leaders, modest gains early in the year were followed by a mid-year spike as vaccinations increased and international travel started to re-emerge in people's Instagram feeds as more than just a pipe dream. Flight Centre (ASX:FLT) led the charge and jumped 78% from August to October, while sentiment – and travel sector prices – started coming back down to earth later in the year as it became evident that global vaccination rates were a blocker to international travel returning to 'normal', while cashflows were going to need some more recovery time. Then came Omicron, threatening to devastate, which has seen Flight Centre dip 27% from October to December. Qantas (ASX:QAN) dropped 14% for the year and Webjet (ASX:WEB) descended 18%.
If you'd like to hear a lyrical version of this annual market wrap, head to our annual market RAP page to hear how we tried to make our serious gangsta rapper do disco tunes. The results were... well, a bit like this year in markets.
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