Year-End 2021 Market Commentary and 2022 Outlook: A Brave New Fed

Benjamin M. Lavine, CFA, CAIA, RICP
Chief Investment Officer, 3D

Data Source: Bloomberg

To read full market commentary, click here.

December 2021 Highlights:

  • Global stocks rallied, especially at the end of the month, following reports that the COVID-19 Omicron variant appears to be less deadly (but more infectious) versus the Delta Variant. In December, the MSCI All-Country World Index (ACWI) rose 4.0% led by the European (MSCI Europe +6.6%) and U.S. region (S&P 500 up 4.5%). Ongoing challenges in China helped drag down broader Asia with MSCI Emerging Markets, Japan, and Asia ex Japan only up 1.9% for the month.
  • Within the U.S., U.S. large cap value stocks (+6.5%) outperformed growth stocks (-0.7%) while U.S. large caps and small caps performed in line with each other (+4.5% each), with most of the advance coming at the end of the month.
  • Defensive sectors such as Consumer Staples, Real Estate, and Utilities led sector performance despite interest rates rising and a more euphoric risk-on mood towards equities. Information Technology, Financials, Energy, Communication Services, and Consumer Discretionary lagged despite a recovery in commodity prices and a more ebullient mood among U.S. consumers.
  • Among risk factors, High Dividend, Value, and Minimum Volatility outperformed the broader market while High Quality and Momentum lagged. Momentum finished the month marginally down, as the factor had struggled throughout much of the fourth quarter.
  • Investment grade fixed income was marginally down as interest rates rose towards the end of the month. The 10-Year US Treasury yield ended the year at 1.5%, up from 0.9% at the beginning of the year. The Bloomberg/Barclays U.S. Aggregate Bond Index returned -0.3% while the Global Aggregate ex US Index dropped 0.1%, as overseas rates did not rise as much relative to the U.S.
  • Corporate credit and emerging market spreads narrowed, benefiting from higher equity prices. The Bloomberg / Barclays US High Yield Index returned 1.9%, while Bloomberg/Barclays EM Local Currency rose 1.4% for the month.
  • Within equity alternatives, Commodities recovered some of the Omicron-driven sell-off in late November. S&P GSCI Commodities returned 7.6% for the month as the generic 3-month oil price contract rose to $74.50/barrel. REITs also finished the year strong, returning 9.6% for the month. Precious metals lagged the broader commodity rally, with S&P GSCI Precious Metals returning 2.9%.

To read full market commentary, click here.