Market Perspectives

Global equities continued to rally in 2021, with the S&P 500 hitting a series of all-time closing highs and ending the year near a record.

Throughout the year, the market continued a relatively steady rise, with large cap stocks in the US ending 2021 near a record high. The S&P 500 Index generated returns of 28.71%. In addition to the effective vaccines, markets were buoyed by a number of other positive developments, including strong corporate earnings and increased consumer demand. In the third quarter, US corporations pulled in record profits - both in dollar terms and as a share of GDP (11%). That came as consumer spending generally trended higher throughout the year, rebounding from pandemic lows.

Likewise, global markets continued to rise alongside those in the US, despite some setbacks. Markets that started the year strong were up and down in the year’s second half but still near all-time highs. Global equities, as measured by the MSCI All Country World Index, increased 18.54%. Developed international stocks, as represented by the MSCI World ex USA Index, rose 12.62%, notably stronger than emerging markets, which saw the MSCI Emerging Markets Index fall - 2.54%.

Fixed income markets experienced more tepid returns than the equity markets, with the Bloomberg Global Aggregate Bond Index returning - 1.39%. After widening in 2020, credit spreads ended 2021 at levels narrower than pre-pandemic levels. For the year, corporate bonds generally outperformed their government counterparts. The dispersion between the two asset classes was much less pronounced than during the previous year, with global corporate bonds outperforming global Treasury and government-related bonds by 0.82%.

While COVID-19 continued to dominate headlines, concerns also focused on inflation and its potential impact.

Investors saw volatility in areas ranging from cryptocurrencies to so-called meme stocks, highlighting the importance of long-term planning and flexibility in a fast-moving market.