Despite a 33% collapse in price during the 4th quarter, Bitcoin still managed to outperform traditional investment classes for 2021. WTI Oil, the S&P GSCI Commodity, and the Dow Jones Real Estate indices’ strong returns helped fuel value stocks to lead the post-lockdown recovery. The increase in the cost of materials is also a contributing factor to the recent rise of inflation. U.S. stocks outperformed both International and Emerging Markets, with the S&P 500 returning an impressive 26.9% vs. MSCI EAFE 7.8%, and MSCI EM -5.5%. Emerging markets underperformance was driven by economic and regulatory uncertainty in China. Gold and Silver lagged in 2021 after both performed well during the peak of Covid fear and uncertainty in 2020.
Record numbers of workers are quitting their jobs in what economists are calling, “The Great Resignation.” Service industries such as retail, hospitality, and food service are seeing the highest number of workers quit. However, rates are higher across all industries. White-collar workers have benefited from the work-from-home flexibility and improved work-life balance. As employers struggle to find their post-Covid normal, workers gravitate to those providing flexibility to work remotely. Employers competing to fill positions has also led to an uptick in overall wages and is likely another contributing factor to inflation.
Source: John Hancock Investment Management - Market Intelligence - Midquarter 4Q21 Outlook, Page 25
Rates continued to rise through the 3rd and 4th quarters, with the 10-year treasury closing the year at 1.6%. This represents an 0.6% increase over the year. With inflation continuing to rise over the summer, the Fed responded by announcing in early 2022 that they will begin to “taper” bond-buying and forecast three rate hikes this year. When rates rise, bond prices fall, dampening returns, which is what happened in the 4th quarter. The Bloomberg Barclays Agg returned 0.01% for the 3-months and -1.54% for the year.
Compared to other developed economies like Europe and Japan, the US provides an attractive yield to global bond investors. Without other central banks tightening, this will limit how much rates can rise in the US.
Source: JPMorgan - Guide to the Markets - As of December 31, 2021, Page 18
The consensus GDP growth forecast amongst economists for 2022 can be described as cautiously optimistic. After a sharp V-shaped recovery, growth is expected to moderate in 2022. The tight labor market and supply chain disruptions will likely remain as inflationary pressures in the early year. New fiscal stimulus and government spending, or lack thereof, will also be a significant economic storyline this year. But with 70% of our GDP comprised of consumer spending, much of our fate will likely be decided by the evolution of Covid and the measures needed to combat the virus.
Author: Jim Rambo, CFA | Research Team | Allegheny Financial Group | January 2022
The information included herein was obtained from sources which we believe reliable. This report is being provided for informational purposes only. It does not represent any specific investment and is not intended to be an offer of sale of any kind. Past performance is not a guarantee of future results.
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