There was reason to cheer as markets notched another all-time high on the first day of trading in 2022. Hope that the bull market might continue quickly gave way to reality as mounting issues emerged, resulting in a rapid drawdown that ultimately saw the S&P 500 decline -13%. Deep oversold conditions combined with a flush in investor sentiment allowed the market to form a bottom to bounce from, ultimately climbing 11% over the final weeks of the quarter. Growth stocks led the way higher during the March rally, but the damage done earlier in the year still left the growth focused index down -9.04% for the quarter. While value stocks did not quite keep pace in the final rally, their superior performance earlier in the year allowed for significant outperformance for the quarter, declining only -0.74%. Perhaps most striking in the quarter was the complete inability of bonds to hedge investors’ stock positions. In fact, for many investors bonds were their worst performer, leaving the typical 60/40 portfolio down -5.5% in the quarter. Broadly speaking, international markets fared no better with the EAFE index down nearly -6% and Emerging Markets down almost -7%. The greatest weakness was seen from countries more intimately tied to the full global economy (i.e. Germany and China). The safe haven trade internationally was in commodity exporting countries like Canada, Mexico, Brazil and Australia.
A weak start to December gave way to a Santa Claus rally to close out a year that began on an inauspicious note. After a negative -1.1% return in January, the direction turned up and hardly looked back. There were only two more down months in 2021 and just a single drawdown of 5% or more: -5.2% from September 2nd to October 4th. With the nearly +29% advance for the year, the S&P500 has now returned a total of +90.13% over the past three years—the best three-year run since 1999. Energy was the year’s best-performing sector at +53.3%, followed by REITS at +46.2% and financials +35%. A huge rally from value in the final weeks of the year was not enough to fully close the relative performance gap to growth. Looking further down the capitalization scale, small and midcap equities lagged their larger peers in the quarter and for the year. Abroad, developed market equities rose in the quarter but were unable to match the advance seen domestically. Emerging market equities eked out a gain in December but were still negative over the final quarter, and for the year. Brazil, China and Hong Kong were all particularly weak. Even after a precipitous December decline, Bitcoin still managed to post eye-popping gains for the year on the back of a large advance in earlier quarters.