The major equity markets (S&P 500, EFA, EEM) did well for the 4th quarter, with the US market being the shining star for 2021. We were concerned that there could be some consolidation, but it didn’t happen. The SP500 closed positive for the full year of 2021, while Developed International (EFA) and Emerging Markets (EEM) were down for the year.
Coming off of a slightly negative 3rd quarter, long and municipal bonds had a slight bounce back and booked positive performance, while the shorter-term bonds had a negative fourth quarter. Longer term bonds (TLT) ended the year positive as a whole while the shorter-term bonds ended 2021 in the red.
Sectors and Factors of note are Energy (XLE), Value (VLUE), Dividends (DGRO), and Technology (XLK). This year was absent of consistent leadership as it was hard to find a leading trend that lasted. When you look back Energy (XLE) was the sector that performed the best, but it didn’t do it every quarter and there were times when it was far from the leader. Moving into 2022 we anticipate continued volatility and potential for further downside, while remaining bullish on Energy with expectation of continued leadership.
Our overall views and catalysts have not changed from the 3rd quarter, and we continue to watch three main things: Fiscal policy, Monetary policy and interest rates. As long as we have fiscal stimulus and accommodative monetary policy, we could see the market continue to make new highs. However, the market doesn’t always go up in a straight line, and rates will not be low forever. Increased volatility is likely as we see the markets views and perceptions on these catalysts change and/or evolve.
For 2021 lower rates and easier policy could be considered the main reason for the positive US performance. As we look to 2022 however, we are starting to see the signs of tighter policies and higher rates. In this environment we will have to be more nimble and conservative, with expectation we could see a choppy market.
Please see below for further detailed analysis and chart references. If you have any questions or would like to discuss anything mentioned, please do not hesitate to reach out. We appreciate each one of you and hope 2021 was a great year.
All the best,
Syntal Investment Team