The S&P 500's 2021

After an extremely volatile 2020 for markets globally, 2021 was a year of stabilization and relative calm, especially in the U.S. The S&P 500, which groups the most important U.S. companies, returned 28.7% last year including dividends. How does what we saw over the past 12 months compare in a long historical context?

The year that just ended, despite posting a return well above the long-term average, does not rank among the highest in history. In 1954, the same index reached a return of 53%, and there are 17 occasions (from 1928 to date) with gains above 30%. However, it should be noted that this same index is coming off returns of 31% and 18% in 2019 and 2020 respectively.

In addition, between January and December of last year, the market hit new all-time highs 70 times. For reference, throughout the entire 2000s decade it reached a new high only 13 times.

2021 was also one of the calmest years on record for that market. The largest peak-to-trough decline the U.S. stock index experienced was only 5.2%. This places it in the top 10 years with the mildest declines since our records began.

Without a doubt, 2021 was one of the best years in history for the U.S. stock market. Unfortunately, we have no guarantee this will be repeated in the year now beginning.

What we do know is that a diversified portfolio will make it possible to benefit from another—hopefully—good 2022 while also mitigating potential losses in case of a more complex path.

This column was originally published in the newspaper La Segunda on January 6, 2022 [LINK]