The commentary attached relates to Q4 2021 and it has been superseded by the recent geopolitical events. The latest thoughts on the current events can be read here.
Market Commentary Q4 2021
This market commentary covers the fourth quarter (Q4) of 2021 which was dominated by rising inflationary pressures and continuing Covid concerns — and ended with the Bank of England’s interest rate hike to 0.25%.
Against a backdrop of stronger-than-expected corporate earnings and central bank stimulus, as well as supply chain bottlenecks and pent-up demand lifting property, energy and other prices, stock markets saw a number of record highs.
For most developed markets, 2021 was a year of very strong returns, led by the US and Europe.
The FTSE 100 gained +4.2% in Q4, finishing the year up +14.3% overall, but lagging the S&P 500 in the US which was up +10.6% for the quarter and +26.9% for 2021 as a whole. The Nasdaq also added +10.6% in Q4, giving a total gain for the year of +21.4%. In Europe, the EuroStoxx 600 rose +7.3% in Q4 and finished the year +21.4% higher. Japan’s Nikkei 225 lost -2.2% in Q4 but finished the year +4.9% higher.
Emerging Markets declined -1.7% in Q4, ending 2021 down -4.6%.
In fixed income, bond yields remained largely unchanged for the quarter with UK 10-year gilts yielding 0.97% at year-end and the US Treasury 10-year yielding 1.51%.
The Bloomberg Barclays Global Aggregate index (a benchmark for world fixed income markets) finished the quarter down -1.6%, giving a loss for 2021 of -4.7%. Note that negative total returns over a year have been rare with this index, only happening in five other years since 1990.
Yields are still very low by historical standards and with the US Federal Reserve poised to hike interest rates to battle inflation, this will be a headwind for bonds going forward.
In commodity markets, oil closed the year at $77.80, a -0.9% decline in Q4 but a +50.2% increase over 2021. Rising energy prices were a major contributor to inflation over the year.
Gold gained +4.1% in Q4 but finished the year -3.6% lower.
The British Pound appreciated +0.4% and +2.2% against the US Dollar and Euro respectively in Q4. For 2021 as a whole, GBP lost -1.0% against the US Dollar but gained +6.3% on the Euro.
Looking forward in 2022 we see economies continuing to make progress and, as supply chain bottlenecks ease, global trade flows should help to keep the price of goods competitive.
However, inflation remains a concern. Monetary policy by central banks will be centre stage for markets in 2022 as Covid threats (hopefully) become more manageable.
Performance figures are quoted in local currencies and are capital price-change only (excluding income) for equity indexes, with total return for fixed income indexes. Oil price refers to Brent crude price.
Data period: 31 December 2020 to 31 December 2021 and (for Q4) 30 September 2021 to 31 December 2021.
Source: Bloomberg and InvestEngine.