Commentary provided by Mark Szycher, Vice President, Investment Specialist, AIG Retirement Services
Market Performance Snapshot* (Week ending January 7, 2022)
- Dow Jones Industrial Average®: -0.3%
- S&P 500® Index: -1.9%
- NASDAQ Composite® Index: -4.5%
- Russell 2000® Index: -2.9%
- 10-year U.S. Treasury note yield: 1.77%
- Up 26 basis points from 1.51% on December 31, 2021
- Best-performing S&P 500 sector this week: Energy, +10.6%
- Weakest-performing S&P 500 sector this week: Real Estate, -5.0%
*Past performance is not a guarantee of future results.
Bond yield surge weighs on stocks in first trading week of the year
Equities and bond prices declined as investors assessed the potential impact of ongoing inflation, a more aggressive Fed, a virus variant that somewhat eludes current vaccines, and less fiscal stimulus than expected. The Dow Jones Industrial Average and S&P 500 rose to start the new year before slipping mid-week, while the NASDAQ Composite suffered a sharp drop as surging bond yields pressured valuations of technology and growth stocks. The S&P technology sector declined 4.7%.
- Job growth averaged 537,000 per month in 2021 and employment has increased by 18.8 million since April 2020, however the economy is still 3.6 million jobs below pre-pandemic levels. Average hourly wages increased 4.7% over the past 12 months.
- Weekly initial jobless claims of 207,000 remained near recent lows as employers struggled to hire and retain workers. The Department of Labor’s Job Openings and Labor Turnover Survey for November found the number of people voluntarily quitting their jobs hit another record after briefly dipping in October, and open jobs outpaced job seekers by about 3.7 million. The figures cover a period before Omicron injected renewed uncertainty into business conditions, but the data suggest ongoing improvement in the labor market as well as continued upward pressure on wages and prices.
- IHS Markit’s purchasing managers indexes for U.S. and European manufacturers showed both regions firmly in expansion territory, though activity dipped slightly in December. The reports also signaled supply chain bottlenecks may be easing – at least prior to Omicron. In addition, a new barometer of global supply chain pressure compiled by the New York Fed said data “seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward.”
- OPEC and other major oil producers will move ahead with planned output increases in February. Oil prices rose on the decision, an indication that Omicron’s current disruptions to global travel and business activity will not seriously diminish energy demand.
- The housing market may become an economic headwind, as home price appreciation, while still high, appears to be cooling and rising mortgage rates could chill demand. Yet household balance sheets appear strong, a positive sign for consumer demand and GDP, particularly if inflation begins to level out and moderate this year.
2021 performance recap
Equities experienced robust growth in 2021, with the S&P 500 rising nearly 27% and reaching 70 new closing highs during the year.1 The Dow Jones Industrial Average rose 18.7% and the NASDAQ gained 21.4%. After performing strongly in the first half of 2021, the small-cap Russell 2000 declined in the second half, still delivering a respectable 13.7% annual gain.
- All 11 S&P sector indexes produced double-digit gains in 2021, with energy (+48%), real estate (+42%), information technology (+33%), and financials (+33%) leading the way. Utilities were the weakest-performing sector of the year, still up 14%.
- The 10-year Treasury yield rose about 60 basis points from beginning to end of 2021 as the economic recovery progressed and the Fed began reducing monetary stimulus. The Barclays U.S. Aggregate Bond Index, a broad-based gauge of investment-grade debt, declined slightly for the year. Bond yields and bond prices move inversely.
- Commodities performed strongly in 2021, amid higher demand, rising inflation, and supply chain woes. Benchmark oil prices rose about 50% while the S&P GSCI Non-Energy Commodities Index rose 20% during the past year.
Final thoughts for investors
Markets are optimistic about the economic growth outlook, but headwinds include inflation, the virus, and uncertainty over the effects of rising interest rates amid Federal Reserve tightening. The beginning of a new year may be a good time to assess your portfolio and rebalance as necessary. Speak with a financial professional about how to manage uncertainty and keep making progress toward your long-term goals.
1 “In a Wild Year for Markets, Stocks Pull Off Big Gains,” Wall Street Journal, Dec. 31, 2021.