The stock market has soared since the start of the year. Low interest rates and government stimulus boosted the market. But the momentum could be over before the year ends. In 2021, the Federal Reserve is expected to raise interest rates for the first time since 2008. A massive spending bill will likely be passed by Congress but the economy is in recovery mode. Without these drivers, the stock market is expected to grow moderately.
The performance of the stock market in 2021 was remarkable, surprising many investors after the crash in 2020. Several sectors saw a surge in demand, including oil producers, semiconductors, and energy. West Texas crude oil CL00 soared 55%, while crude oil CL00 rose 12%. But despite the soaring stock prices, there is a lot of uncertainty in the market. That means investors should not put all their eggs in one basket.
Speculative frenzy will be the hallmark of 2021, as investors continue to pile on to stocks. However, the long streak of gains in the stock market belies a lower-than-average investor sentiment. The back half of 2021 has seen fewer stocks participate in the bull run. Only 45% of S&P 500 constituents traded above their 200-day average. This suggests that this year, investors will be less enthusiastic about stocks.