January 2022
Market Update

Maybe you are in the camp that no longer sets New Year’s Resolutions, but can you resist the temptation to look back on the year that we just finished and not reflect on what was and think about what may yet be in the year ahead? 

Last year we reflected the number of extremes that were thrown at us in 2020 and the hope that we would continue the recovery in the economy, in the general healing of the world on multiple levels … and that maybe Mother Nature would cut us a break this year.  While the economic recovery picked up incredible momentum with record everything – job creation, housing values, wage growth, prices on literally everything – the world was still a pretty angry place and Mother Nature just rotated her wrath to different areas.  

Yet in spite of this, markets in 2021 continued to exhibit very impressive resilience since the pandemic began, as the strength of the U.S. economy and corporate America helped produce another year of substantially positive returns in stocks. And that resilient nature should continue to support markets and the economy as we begin a new year. 

By market capitalization, large company stocks handily outperformed small companies both in the fourth quarter and throughout 2021. As mentioned, concerns about future economic growth were the main driver of large-cap outperformance and small-cap underperformance especially in the second half of 2021. The Delta and Omicron variants were headwinds on economic growth in the second half of the year, while the Fed potentially hiking rates more than expected made the growth outlook for 2022 less certain, and those two factors drove a rotation from small caps to large caps in the third and fourth quarters.

In contrast, bonds struggled this year due to concerns about tightening monetary policy being discussed by the Federal Reserve and signs that inflation may be more persistent than transitory. Higher-yielding, but lower-quality corporate bonds posted a positive return and outperformed on a full-year basis, as investors flocked to riskier debt amidst low rates, elevated inflation, and strong economic growth. Lower-yielding and safer investment-grade corporate debt and US treasury bonds underperformed in the fourth quarter and posted a negative return for 2021, for only the second time in a decade.

It will not all be such smooth sailing as we move forward.  The pandemic launched a series of global changes that have resulted in tight labor markets, supply chain disruptions and geopolitical anxiety that can present numerous potential challenges to economic growth, corporate earnings, and market returns.   Reductions in global stimulus, still stubbornly high inflation pressures, political uncertainty, and the ongoing pandemic - any one of these areas may pose the next trigger for a market correction.  We expect volatility to be a common theme in 2022 as we enter this next and new phase of the recovery.

The counterpoint to these concerns, is that there still remain multiple, powerful tailwinds on stocks and other risk assets. Corporate earnings remain incredibly strong and the performance of corporate America through the pandemic has been nothing short of amazing. Interest rates, while they will likely rise in 2022, remain very, very low and not yet close to levels that would historically be considered a headwind on economic activity. Personal savings remain high, unemployment remains low, and broadly speaking the U.S. economy is in pretty strong shape.

What resolutions (not predictions!) would we make about the year in front of us?  To understand that the world we knew in 2019 has changed forever.  It will require more patience, more kindness, and more nimbleness to navigate your investment strategy as we move forward.  We resolve to continue to work tirelessly on your behalf to ensure your financial plan stays on track.

Welcome to 2022.

We will be conducting our first Zoominar of the new year on Wednesday, February 9th at noon.  Watch your email for a link to register for our Outlook for 2022!

If you have questions, please contact us.

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To download the January 2022 Newsletter: CLICK HERE