December Market Recap
January 3, 2022
As we look ahead to a new year, most Americans are probably hoping 2022 will have very little in common with 2021. Spending almost two years under the suffocating weight of a global pandemic makes that understandable. Yet, as far as investors are concerned, most would gladly take more of the same.
The US stock market wrapped up 2021 on a familiar path… Trending higher. The S&P 500 and Dow Jones Industrial Average both finished the year within 1% of their all-time highs thanks to December returns above 4% and 5%, respectively. The vast majority of those gains came in the final 11 days of the year. The NASDAQ gained less than 1% last month and ended 3.5% below its highwater mark.
Ten of the 11 sectors in the S&P 500 delivered positive performance in December. Consumer Staples (+10%), Real Estate (+9.7%), and Utilities (+9.4%) led the pack. Only Consumer Discretionary (-0.3%) finished in the red.
|Index||December 2021||YTD 2021|
On its way to a 27% calendar year return in 2021, the S&P 500 closed at a new all-time high an astonishing 70 different times. That’s the second most ever. Only 1995 had more (77).
While the momentum remained positive for the vast majority of the year, equities began December with a bit more uncertainty. Stocks had been negative in two of the previous three months (September, November) and investors were still making sense of a steep Omicron-induced selloff.
Equities moved higher in the first week of December before facing some mid-month volatility. Some of that may have been rekindled COVID concerns, but more was due to the latest developments from the Federal Reserve.
On December 15, the Fed released a statement announcing its intention to quicken the pace of its tapering. That is to say, reducing economic stimulus twice as fast as Fed Chair Jerome Powell originally suggested. The accelerated schedule puts the Fed on pace to eliminate bond buying and begin hiking interest rates in the second quarter of 2022.
The S&P 500 sold off 4% in the three days after that news, but it was all positive from there. Stock prices surged significantly from December 21 through year-end. In hindsight, it looks like a somewhat predictable Santa Claus rally. Some years, perhaps all you need to do is believe.
As good as 2021 was for equities, it was an ugly year for bonds. The Bloomberg Barclays Aggregate Bond Index lost 1.7% for the year. In its 46-year history, the index has only registered a negative calendar year return three other times, most recently in 2013. 10-year US Treasury yields, specifically, ended the year at 1.51% (up from 1.44% a month earlier). Treasury yields started the year at 0.92%. Rising interest rates, as most investors know, have a negative impact on the performance of bonds.
Inflation, obviously, is what’s causing interest rates to increase even though the Federal Reserve has delayed any official change to its benchmark Fed Funds rate. The latest Consumer Price Index (CPI) data showed annual inflation of 6.8%, the highest reading of 2021 (and the highest in nearly 40 years).
Gasoline prices alone have spiked 58% in the last 12 months. Wages have increased 4.8% over the same period, meaning the cost of living (after inflation) for an average American family is becoming more expensive. If that sounds worrisome be thankful at least you don’t live in Turkey, where a full blown financial crisis includes year-over-year inflation of 36%!
International equities lagged US stocks for the year. Some of that is due to China, where slowing growth and a rash of regulatory crackdowns have hindered the world’s second largest economy. Part of the underperformance is also due to the US dollar strengthening roughly 7% last year versus global currencies.
Non-US Developed equities gained 4.4% in December and 15% for the year. Emerging Markets grew 1.5% in December, but still lost roughly 2% in 2021.
Gold prices increased 3.3% in December.
Here’s to a prosperous year for you and your portfolio in 2022.
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser. Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.
Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.