2021-Q4 Market Commentary

The major indices posted healthy returns in the fourth quarter to cap off a strong year. The S&P 500 ended the quarter up 10.65%, the Dow Jones Industrial Average climbed 7.37%, and the Nasdaq Composite finished up 8.28%. For 2021, the annual returns were 26.89% for the S&P 500, 18.73% for the DJIA, and 21.39% for the Nasdaq Composite. On the fixed income side, it was another underwhelming quarter for the bond markets to close out a decline for the year. The potential for rate hikes by the Fed came sooner-than-expected and combined with high inflation weighed on most of the bond market. Internationally, developed markets were positive for both the quarter and the year, but underperformed US equities. Emerging markets declined for both the quarter and the year.

10 of the 11 S&P 500 sectors were positive in Q4 with Communications as the lone laggard for the quarter. Energy posted another strong quarter and ended the year with the highest sector increase due to significant gains in oil futures and other commodities after the economy continued to reopen and demand increased. Large cap stocks outperformed small cap in the US equity market and large cap growth outperformed value, but value outperformed growth in small cap stocks.

This past year continued to illustrate how resilient the markets have been since the pandemic began in 2020. The year ahead will present challenges to economic growth and market returns, including a reduction in global stimulus, high inflation pressures, political uncertainty, and the ongoing handling of the virus. The record-high stock prices continue to leave some investors mixed about the trajectory of the market and apprehensive that these new highs foreshadow a downward turn in the future. As pointed out in a recent article, if stocks have a positive expected return, reaching record highs with some frequency is exactly the outcome we would expect.