December 2021 | Global Equity Markets
December proved itself once again as a consistently positive month of the year. The S&P 500 Index total return for the month was 4.5% — representing the best December since 2010. Market breadth dramatically improved as well, with the S&P 400 Mid Cap and S&P 600 Small Cap posting impressive returns of 5.1% and 4.5%, respectively. All 11 economic sectors' returns were positive, although, in an interesting twist the defensive sectors (Consumer Staples, Real Estate and Utilities) turned in the best monthly returns while more cyclical sectors (Technology, Financials and Energy) lagged the composite return. The value style also staged a strong comeback in December after two months trailing growth stocks.
As previously mentioned, December 2021 was the strongest return in over a decade and, as the first chart below illustrates, the third-best December return over the past 20 years. The result was even more remarkable as the rapid spread of the Omicron variant and a significant shift in Federal Reserve policy were the month’s leading headlines. The uncertainty brought about by both headlines has not played out yet but incremental news on the severity of the Omicron variant by month-end is encouraging. As we enter 2022, financial market attention should shift noticeably to the end of the $120 billion monthly bond purchases by the Fed and the subsequent increase in the Federal Funds rate. Apprehension surrounding the end of the era of record-low rates impact on stocks was best witnessed in the volatility of individual stock prices during this month. It's expected that more bouts of stock price volatility may occur in the coming months as the monetary policy road map toward a less accommodative Federal Reserve becomes clear.
The final month of the year also prompted a rally in global equity markets. As pointed out in prior monthly updates, valuation in non-U.S. markets appears compelling and the leadership of these markets in December is reassuring. The chart below highlights the 20 major global equity market indices which make up the substantial share of publicly traded shares. The U.S. market is by far the dominant index with roughly 58% of the world total but in December investor attention was directed to many international markets. The value of the dollar was little changed in December after a strong run through most of 2021. Absent foreign exchange influences, a continued rise in non-U.S. markets in local currency terms will be evidence the discounted valuation in these markets will support further gains relative to the domestic indices. Fixed income yields are unappealing and do not represent a compelling risk-reward trade-off compared to equities. Challenges facing stock investors are not minimal as valuation reflects an optimistic outcome in the largest growth companies in the market. The disparity in valuation across economic sectors and market capitalizations is widening and may represent an opportunity to make a tactical shift within global allocations in the months ahead.
Important Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 12/31/2021 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:
- The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
- The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
- The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
- The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
- The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
- The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
- The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
- The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
- The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
- The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
- The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
- The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
- The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.
Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.
- The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
- SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
- West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
- CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market's expectation of 30-day volatility.
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