By ADAM HAYES
Dec. 20, 2021
2021 was a truly unusual year. After 2020, a year fraught with the effects of the global COVID-19 pandemic that wreaked havoc on world markets, forcing families into their homes with lockdowns and businesses to shutter their doors, 2021 saw the advent of safe & effective vaccines and renewed consumer confidence.
- As the global economy emerged from the doldrums of 2020 caused by the COVID19 pandemic, 2021 saw a flurry of record-breaking.
- From the stock market to home & car price, 2021 saw record-setting prices in a range of markets.
- A record amount of capital-raising and deal-making also occurred in 2021 as businesses and bankers scrambled to make up for time lost in 2020.
Because of the structural constraints and production gaps caused by COVID-19, however, this resurgence of consumer demand led to several disruptions, anomalies, and record-setting prices in certain markets.
Here, we take a look back at 2021 and review some of the most important records broken during this past year.
Inflation refers to a general increase in prices across an economy. While there are several reasons proposed by economists for this phenomenon, it can also be construed as a decrease in purchasing power of the money (or its general devaluing). Put differently, with inflation, each dollar you have buys you less stuff.
Since the financial crisis of 2008-09 and the Great Recession that followed, inflation in the U.S. and in much of the world, for that matter, remained quite low. Even as central banks cut interest rates to zero in order to spur demand, prices did not rise very much on an annual basis through 2020.1
As consumers began buying again in the Spring of 2021, however, prices began to tick up.2 This has been attributed to producers who scaled back or were forced to shut down due to COVID in 2020 being unable to scale back up in time. At the same time, shipping costs and snarls at ports around the world caused further price increases, along with delays and frayed supply chains.
By the late summer, it was clear that inflation was upon us, although some economists and central bankers urged caution that it should only be a temporary spike as the economy ramped back up. However, by the winter of 2021, it became clear that rising prices had appeared to have set in. The U.S. Bureau of Labor Statistics (BLS), which compiles one of the primary indexes of inflation called the Consumer Price Index (CPI), saw prices increase by 6.8% in the 12-month period ended November 2021, a rate not seen since the early 1980s.3
As of the end of November 2021, the CPI index stands at a record-breaking high of 278.88.4
The Stock Market
Even while inflation was taking a bite out of your wallet, you may have also noticed that your investments and retirement portfolio were doing quite nicely. In fact, 2021 saw record highs in the U.S. stock markets.5 While some of this increase can also be attributed to the rise in inflation, corporate earnings saw a boost from the pent-up consumer demand that was unleashed in 2021.
After an initial severe sell-off in March of 2020 when COVID first struck, stocks rebounded through 2020 and into 2021. By November of 2021, the S&P 500 reached an all-time high of $4,7436 and the Dow Jones Industrial Average (DJIA) a record high of $36,565.7 The tech-heavy NASDAQ, too, saw a record high of $16,212 in that month,8 as work-from-home, online ordering, and teleconferencing became more and more of a norm.
With stock markets on fire, companies rushed to go public and sell their shares through IPOs at a record pace. These included tech companies like DiDi, Bumble, and AppLovin; as well as financial platforms like RobinHood and Coinbase (which was a direct issue). 2021 is on track to see almost 1,000 IPOs, more than twice the number in 2020 and 4x the amount in 2019.9
Fast Fact: A record nineteen companies raised more than $1 billion each via IPO in 2021.10 In total, a record $1+ trillion was raised via initial public offerings and direct listings this year.11
Mergers & Acquisitions
It's no surprise that global M&A activity in 2021 has also smashed records. Business combinations and private equity deals amounted to more than 40,000 transactions, with an aggregate valuation of more than $6 trillion.1213
Part of the reason for this surge in deal-making can be attributed to playing catch-up, as the prior year's mergers and acquisitions volume was muted, with only $3.6 trillion worth of deals completed in 2020.12
It was not only a record-setting year for issuers of equity. High-yield bond issuance (i.e., "junk bonds"), hit a record $432 billion in 2021 as corporations large and small hurried to borrow money relatively cheaply from investors as inflation started to take hold.14
Junk bonds are relatively riskier debt securities that are classified as below investment grade by credit agencies. This means that there is a higher chance of default, but there are also higher yields to compensate investors for this added risk. So, while interest rates remain low and inflation ratchets up, investors seeking yield have been eager to snap up this record-setting amount of new riskier debt.
Real estate was another sector that experienced record-setting prices in 2021.15 As people hunkered down with COVID lockdowns, finding the right home to hunker down in has become increasingly important for many households. As a result, homebuyers have been willing to pay a premium for that perfect place. At the same time, low interest rates meant that mortgages were still affordable, fueling home price increases not seen since before the 2007-08 housing crisis.15
Home price really started to jump in the early summer of 2021, with a record 19.7% year-on-year increase in July (leading up to the housing bubble, the prior record YoY increase was 14.51% in September of 2005). While the rate of home prices increasing has moderated since, the Case-Schiller Home Price Index that measures the average prices of homes in the U.S. hit a fresh record high level of 271.2 in September 2021.16
Households also shelled out record-high amounts for new cars in 2021. In September '21, the average price of a new car in the U.S. topped $45,000, according to Kelley Blue Book (KBB), a more than 12% increase from the same period in 2020.17
Used car shoppers, too, experienced sticker shock. In September 2021, the average price in the U.S. for a pre-owned vehicle jumped nearly 25% in just one year, to $25,829.18
Helping to boost car prices are a shortage of inventories, global supply chain disruptions, overseas shipping delays, and a shortage of microchips needed to power today's high-tech vehicles.
The crypto market also set new records in 2021, with the total value of cryptocurrencies just touching $3 trillion in November of 2021.19 Of course, Bitcoin remained the most valuable of all cryptocurrencies, dominating more than 40% of that total market cap through 2021. After retreating from an April 2021 high of over $64,000, BTC prices soared to just under $68,500 in November, before pulling back once more.20
November of 2021 also saw Ether, the token of the Ethereum blockchain, hit a record $4,850. commanding more than one-fifth of the entire crypto market capitalization.21
Several other cryptocurrencies, altcoins, and tokens also soared to records in 2021, notably meme-coins like Dogecoin and Shiba Inu, as well as established tokens like Ripple's XRP, Binance Coin, Solana, and Cardano, among several other record-setters in the space.22
The Debt Ceiling
In the U.S., Congress must approve all spending that comes from the issuance of government debt. This can sometimes lead to a political game of chicken, with the threat of a harmful government shutdown or sovereign default if the level of new debt (known as the debt ceiling) is not approved.
As in the past, this stalemate arose again in October 2021, with an ultimate resolution that increased the debt ceiling to a record $28.9 trillion.23
Aside from a record-breaking economy, some more dismal records were also set in 2021. Global warming continued to ominously produce new average high temperatures. According to the National Oceanic and Atmospheric Administration (NOAA), July 2021 was the hottest month on record. Moreover, NOAA predicts that 2021 will be among the top-ten warmest years on record.24
This is concerning as climate change and warmer temperatures can lead to rising sea levels, crop failures, habitat destruction, and heat-related ailment or illness among human populations. Scientists and policymakers have urged action, but it is uncertain if it is already too late to reverse the effects caused by industrialization and fossil fuel emissions.
Climate change can also cause enormous amounts of property damage and other economic fallout. 2021 was a record-setting year for hurricanes causing nearly $105 billion in losses (up from 2020's then-record $100), stemming from no less than 18 billion-dollar events.25
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- U.S. Bureau of Labor Statistics. "Consumer Price Index." Accessed Dec. 15, 2021.
- U.S. Bureau of Labor Statistics. "Consumer Prices Increase 6.2 Percent for the Year Ended October 2021." Accessed Dec. 15, 2021.
- U.S. Bureau of Labor Statistics. "Consumer Price Index." Accessed Dec. 15, 2021.
- Federal Reserve Bank of St. Louis. "Consumer Price Index for All Urban Consumers." Accessed Dec. 15, 2021.
- Trading Economics. "United States Stock Market Index." Accessed Dec. 15, 2021.
- Yahoo Finance. "S&P 500 (^GSPC)." Accessed Dec. 15, 2021.
- Yahoo Finance. "Dow Jones Industrial Average (^DJI)." Accessed Dec. 15, 2021.
- Yahoo Finance. "NASDAQ Composite (^IXIC)." Accessed Dec. 15, 2021.
- Stock Analysis. "All 2021 IPOs." Accessed Dec. 15, 2021.
- Yahoo Finance. "2021 Is Set To Smash IPO Records." Accessed Dec. 15, 2021.
- Pitchbook. "US public listings surpass $1T in 2021." Accessed Dec. 15, 2021.
- CNBC. "‘Turbocharged’ M&A Market Could Hit a Record $6 Trillion by Year End, Says KPMG." Accessed Dec. 15, 2021.
- Refinitiv. "Global M&A Soars as Acquirers Make Up For Lost Time." Accessed Dec. 15, 2021.
- Bloomberg. "U.S. Junk Bonds Sales Set Annual Record With $432 Billion in Rush to Beat Rates." Accessed Dec. 15, 2021.
- Federal Reserve Bank of St. Louis. "Average Sales Price of Houses Sold for the United States." Accessed Dec. 15, 2021.
- Federal Reserve Bank of St. Louis. "S&P/Case-Shiller U.S. National Home Price Index." Accessed Dec. 15, 2021.
- Kelley Blue Book. "Average New-Vehicle Transaction Prices Top $45,000 for First Time, According to Kelley Blue Book." Accessed Dec. 15, 2021.
- Kelley Blue Book. "Dealers Paying More for Used Cars This Month." Accessed Dec. 15, 2021.
- CoinMarketCap. "Total Cryptocurrency Market Cap." Accessed Dec. 15, 2021.
- CoinMarketCap. "Bitcoin." Accessed Dec. 15, 2021.
- CoinMarketCap. "Ethereum." Accessed Dec. 15, 2021.
- CoinMarketCap. "Crypto Prices and Market Cap." Accessed Dec. 15, 2021.
- Congressional Budget Office. "Federal Debt and the Statutory Limit, November 2021." Accessed Dec. 15, 2021.
- National Oceanic and Atmospheric Administration. "It’s Official: July Was Earth’s Hottest Month on Record." Accessed Dec. 15, 2021.
- National Oceanic and Atmospheric Administration. "U.S. Hit With 18 Billion-Dollar Disasters So Far This Year." Accessed Dec. 15, 2021.