As we move into the new year, many articles review the year just completed. For example, Neil Irwin’s article in the New York Times reports that “[f]or people who study the vicissitudes of the economy… 2021 has been a year in which economic dynamics that had seemed entrenched for decades came apart, or changed in fundamental ways. Workers attained the upper hand over employers; supply chains broke; inflation surged; and the economy rebuilt itself from its depressed pandemic levels with astounding speed…. The government tried overheating the economy for once. For better and worse, it succeeded” (NY Times 1/1/2022, page B1). Irwin’s article, focused as it is on the economy, did not mention the extraordinary performance of the US stock market, with the total US stock market up over 25%.
In this spirit of review, we are summarizing Park Piedmont’s eleven months of 2021 Comments. We should also note that many other articles use the year-end as the opportunity to forecast what is coming. As even our most casual readers know, we do not engage in this activity, which amounts to trying to predict the future.
Before starting our review, you might want to see how you do on our brief quiz of topics covered by the Comments (answers can be figured out in the summaries below):
- What was the number of down months for US stocks: 1, 3, or 5? (Compare with how much month-to-month concern you felt over stock prices.)
- What was the investment return on high-credit intermediate taxable bonds, even with all the talk about rapidly rising market interest rates: minus 6.0%, minus 4.0%, or minus 2.0%?
- What was the increase in the ten-year US Treasury yield over all of 2021: 1.6%, 1.0%, or 0.6%?
NOTE: How to read each month’s top line figures: US stocks, month and YTD results; Bonds, change in 10 year US Treasury yield, and intermediate-term taxable high credit bond returns, month and YTD.
January 2021 US stocks: (1.1%), YTD (1.1%); Bonds: UST 0.93% to 1.1%; (0.7%), YTD (0.7%)
Day-trading amateurs taking advantage of large hedge fund short positions. Will it have a long lasting or short lived impact? Interest rates remain low; economic growth higher as pandemic slows; government money to people hurt most by pandemic; potential for inflation.
February 2021 US stocks: +2.6%, YTD +1.5%; Bonds: UST 1.11% to 1.45%; (1.6%), YTD (2.3%)
Rising interest rates, bond prices down, stock prices higher; Fed sees improving economy; possible interest rate increases to address rising inflation. Bitcoin.
March 2021 US stocks: +4.2%, YTD +5.8%; Bonds: UST 1.45% to 1.74%; (1.5%), YTD (3.8%)
Rising stock prices even with increasing interest rates; impact of tech sector; different parts of S&P 500 index; picking sectors, e.g., International/Emerging Markets; Growth/Value; Market Cap Size.
April 2021 US stocks: +5.5%, YTD +11.3%; Bonds, UST 1.74% to 1.65%; +1.0%, YTD (2.8%)
Closer look at inflation.
May 2021 US stocks: +0.6%, YTD +11.9%; Bonds, UST 1.65% to 1.62%; +0.5%, YTD (2.3%)
Governmental actions and their impact on the economy; deficit spending, budgets, taxes, financial markets.
June 2021 US stocks: +3.4%, YTD +15.3%; Bonds, UST 1.62% to 1.45%; +0.8%, YTD (1.5%)
Closer look at rebalancing: a comparison of adding to allocation of higher performing asset class (not advised) to reducing allocation to higher performing asset class (difficult to do in rising stock market).
July 2021 US stocks: +2.3%, YTD +17.6%; Bonds, UST 1.45% to 1.24%; +1.3%, YTD (0.2%)
Bonds in a low interest rate world, and when rates appear to be rising.
August 2021 US stocks: +2.8%, YTD +20.4%; Bonds, UST 1.24% to 1.30%; (0.3%), YTD (0.5%)
Winners and losers in financial markets: Only hear about winners; losers avoid publicity
September 2021 US stocks: (5.7%), YTD +14.7%; Bonds, UST 1.30% to 1.52%; (0.9%), YTD (1.4%)
The challenges of finding causation: how can same facts “cause” increases one day and declines the next.
October 2021 US stocks: +7.9%, YTD +22.6%; Bonds, UST 1.52% to 1.55%; (0.5%), YTD (1.9%)
Closer look at asset location: which accounts are best used for different investments, with a focus on tax issues, taxable and tax deferred accounts, and stocks and bonds.
November 2021 US stocks: (1.0%), YTD +21.6%; Bonds, UST 1.55% to 1.43%; +0.2%, YTD (1.7%)
Revisiting inflation and interest rates as the Fed changes its outlook.
December 2021 US stocks: +5.3%, YTD +26.9%; Bonds, UST 1.43% to 1.51%; (0.1%), YTD (1.8%)
We hope 2022 is off to a very good start, and wish you all the best in the year to come.