December 2021 in Review

Daniel Zeigler, CFP, CMFC, Portfolio Manager

Happy New Year, everyone! This is Dan Zeigler, Portfolio Manager at Midland Wealth Management. Today I just wanted to provide everyone with a quick recap on the markets for the month of December and for the year.

Despite some earlier volatility in the month of December, the end-of-year Santa Rally came to fruition, as the S&P 500 ended the month up 4.56% and ended the year up over 28%. 2021 was the sixth-best year for U.S. equities since 1990 as the S&P 500 closed 70 days at record highs. Small-cap stocks ended the month up about 2% and were higher by almost 15% for the year.

International stocks did lag the U.S. with the MSCI EAFE returning close to 11% for the year, while the emerging market index was the worst performer, down about 2.5% for the year.

Historically, after a 20%-plus return year in the S&P 500, the index will typically follow up with a positive return the next year as well, however, we would certainly expect more volatility and muted returns in 2022 as U.S. equity valuations remain historically high.

As we closed out the year, fixed income investors certainly didn’t have as much to cheer about compared to equity investors. Most bond indices’ performance for the year was flat to slightly negative, as short-term yields moved up to the highest levels since early 2020 in anticipation of tighter monetary policy. The Barclays U.S. Aggregate Bond Index was down about 1.5% for the year.

All eyes continue to remain on the Fed for any clues on when they will begin to adjust the overnight borrowing rate. As the U.S. economy continues to improve and inflation remains higher, both investors and the Fed are now anticipating three quarter-percentage-point interest rate hikes by the end of 2022 and there is currently a 50% probability the Fed may raise rates as soon as March. /p>

Fixed income continues to offer value in a diversified portfolio by helping to provide both income and stability during uncertainty. To reduce price volatility as interest rates rise, our investment strategy continues to favor a well-diversified bond portfolio with an average duration of less than four years.

As we head into 2022, the headlines may focus on the negative impact of COVID, but the U.S. economy continues an upward growth trajectory. Consumers remain confident, jobs are plentiful, and the strong housing and equity markets have increased household net worth. We anticipate GDP growth in 2022 to be between 3 to 4%, however, we’ll be paying close attention to inflation data, Federal Reserve interest rate policies, and COVID-19. Be sure to check out our latest newsletter and our 2022 outlook webinar on January 25th at noon.