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Monthly Market Commentary

December 2021 Market Commentary

By January 10, 2022June 3rd, 2022No Comments

Please find our most recent market review below. Following the commentary, you will find a table of returns for widely available ETFs that represent the major markets. Below that are five simple portfolio mixes, composed of low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope this information is of value to you.

– The AdvicePeriod Team

Monthly Market Review

By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer

December was a volatile month for stocks, as investors contended with the news of the Omicron COVID variant wave and the Federal Reserve’s pivot to fight inflation. Still, U.S. stocks rose solidly for the month, capping a year that saw the S&P 500 index gain 29%.

U.S. stocks (VTI) rose 3.79% in December and 25.67% for the year. Developed international stocks (VEA) gained 4.34% for the month and 11.67% for the year. Emerging-market equities were up 1.55% in December, but finished 2021 up just 1.30%, thanks largely to pressure from the strong U.S. dollar. U.S. bonds (BND) fell .31% to cap off an annual loss of 1.86%, while municipal bonds (MUB) had a .01% loss for December and 1.02% for the year.

For domestic equities, 2021 was the third straight year of exceptionally high returns. The S&P gained 18% in 2020 and 31% in 2019, following a 4% loss in 2018. Last year’s returns were driven by strong corporate profits, which resulted from robust consumer spending that defied higher prices and supply chain delays. Still, many of the challenges that the markets overcame in 2021 will remain into 2022, and another year of exceptional returns is far from certain.

The markets in December faced a headwind in the form of persistently high inflation: The Consumer Price Index rose 7% in 2021, marking its highest level since 1982. In the face of the persistent price increases, the Fed announced a faster end to the bond-buying program it has been using to support the economy since early in the pandemic. The bond purchases are now set to end by March. Interest rate increases also appear certain in 2022, with the market projecting three upward moves by the central bank.

While stocks have done well, the economy sent mixed signals all year. Employment is a good example: U.S. employers added 199,000 jobs in December, whiffing on the average forecast of 450,000. But the unemployment rate dropped to 3.9% from 4.2% the previous month, beating economists’ projections.

Interest rates, which rose sharply in the first quarter and dipped in the second quarter, ended the year on a steady path. Yields on the 10-year Treasury finished the year at 1.51%, up from 1.44% in November. The 30-year Treasury yield rose 0.12% in December, to 1.9%.

Real gross domestic product, an inflation-adjusted measure of the value of goods and services produced by the economy, was 6.7% in the fourth quarter, according to an estimate by the Atlanta Fed; that figure would be a strong improvement from the third quarter’s disappointing 2.3% rate.

Stocks’ surprising performance over the course of the pandemic is an excellent reminder that no one can reliably predict the market. Consumer spending, the engine that powers corporate earnings, is projected to remain robust in 2022. But economic headwinds abound, including the Fed’s hawkish shift, rising COVID cases, continuing high inflation, and the political uncertainty that accompanies a mid-term election year.

As always, the best way to navigate uncertainty is to have a long-term financial plan and an investment portfolio designed to balance risk and reward according to your objectives and tolerance for market volatility. Over time, patient investors tend to achieve their most important goals.

Does past performance matter?

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What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks

Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard

Percentage of US large-cap funds that underperformed their benchmarks

US large-cap benchmark:
S&P 500

Percentage of international funds that underperformed their benchmarks

International benchmark:
S&P International 700

Percentage of emerging market funds that underperformed their benchmarks

Emerging Markets benchmark:
S&P/IFCI Composite

The S&P Dow Jones SPIVA Scorecard compares actively managed funds against their respective benchmarks semiannually.

AdvicePeriod Disclosure 


U.S Bureau Of Labor Statistics