Year In Review
2021 was another year filled with concern, whether it was the COVID-19 pandemic, rising inflation, or the Federal Reserve and interest rates. Even with that uncertainty, the US markets still had a very strong performance and by the end of the year:
- The Dow Jones Industrial Average finished up 20.95%
- The S&P 500 ended with a gain of 28.71%
- The NASDAQ was up 22.18%
At the beginning of 2021, few investors expected these types of returns. However, markets and investors shrugged off any potential events that might have derailed the market and the S&P 500 notched 70 new all-time highs over the course of 2021 and had the third-largest gain of the past 20 years.
Markets Turn in Very Good Fourth Quarter
Global equity markets had a volatile fourth quarter, but by the time the year ended, global markets recorded very decent numbers, as good returns from the first and third month sandwiched a less than stellar second month.
For the fourth quarter of 2021:
- The Dow Jones Industrial Average finished with a gain of 5.9%
- The S&P 500 ended with a gain of 9.4%
- The NASDAQ closed with a gain of 7.4%
The themes that helped drive market performance were like the ones that helped drive performance the prior quarter (and for most of this year). In December, these themes seemed to subside a little bit – especially inflation and supply chain issues.
The other positive themes were helpful consumer confidence, rising housing prices, an active Federal Reserve, and earnings that came in better than expected.
For the fourth quarter, there was one new area that certainly impacted market performance – and that is the emergence of a new COVID-19 variant that caused investors to seek shelter in safe-haven assets and caused a rotation from growth to value stocks in late November. As more data became known, Wall Street shrugged off those November worries and the quarter finished strong.
Market Performance Around the World
32 of the 36 developed markets tracked by MSCI were positive for the fourth quarter of the year, with 13 posting returns more than 7%. For the quarter, the World Index was up 7.49%.
Again, the themes that helped drive market performance this quarter have been on Wall Street’s radar all year and did not magically appear when the fourth quarter kicked off – except for the new omicron variant. Other than that, the worries of rising inflation, the Federal Reserve’s schedule of remaining accommodative, declining consumer sentiment, red-hot housing prices, and supply chain issues have all been around for the whole year.
The fourth quarter did see a few more topics added to that long list of events that could have an impact on the market. Those are:
- A highly debated Build Back Better bill that could carry a price tag of at least $1 trillion and up to $3.5 trillion
- A COVID-19 variant sweeping the country and the world
- A change in tone from the Federal Reserve indicating that inflation is no longer transitory; and
- Skyrocketing shipping fees, empty shelves and rising inflation just about everywhere
Inflation Keeps Rising
Right before the Christmas holiday, the U.S. Bureau of Labor Statistics announced that the Producer Price Index for final demand increased 0.8% in November.
- For the 12 months ended in November, prices for final demand less foods, energy, and trade services increased 6.9%, the largest advance since 12-month data were first calculated in August 2014.
Housing Prices Skyrocket
A few days before year-end, the Federal Housing Finance Agency announced that prices rose nationwide in October, up 1.1% from the previous month.
House prices rose 17.4% from October 2020 to October 2021. The previously reported 0.9% price change for September 2021 remained unchanged.
Over the course of 2021 and for the past several years most Patriot investors have seen annualized double-digit returns. Moving forward, we do not know when a market decline will occur, but we do know that it will happen, at some point.
Jason Zweig, a Wall Street Journal writer, recently said that the best investment in 2022 is likely to be “discipline”. With the course of the coronavirus pandemic unclear, inflation expected to keep spiking, and the Federal Reserve poised to raise interest rates, anything can happen, and probably will.
Since our inception 29 years ago, Patriot has always believed in discipline. We will continue to focus on the things that we can control and not speculate or guess what may happen in the markets. These factors are: asset allocation, costs, and investor behavior. We believe that being properly diversified across asset classes, keeping your investment costs low, and not making large shifts in your portfolio unless something dramatic has changed in your life are some of the most important things that we can help our client’s control.
If you have concerns about your portfolio or wish to speak with your advisor, contact us today.