Stock markets around the world were generally positive for the fourth quarter and full year. In the U.S., the broad Russell 3000 index returned +9.3% for the quarter and ended the year +25.7%. Developed foreign equities (MSCI World ex-US) returned +3.1% for the quarter and +12.6% for the year, and the MSCI Emerging Markets Index returned (1.3%) for the quarter and (2.5%) for the full year.
In local currency terms, foreign stocks posted significantly higher returns, but a strong U.S. dollar (considered overvalued by many measures) eroded that performance when translated into U.S. returns. Global REITs rebounded strongly from pandemic-driven drops, returning +12.4% for the quarter and +31.4% for the year.
Yields on the 10-year U.S. treasury held steady, ending the quarter at +1.52%. For the full year, rising rates accompanying a global economic recovery led to small negative returns for the U.S. Aggregate Bond Index (1.54%). Looking into 2022, continued rate pressure and the likelihood of Fed rate hikes may well lead to further challenges for bond prices.
After sharp increases in the prior quarter, energy prices remained stable, with WTI crude oil finishing at $75.44 per barrel. Natural gas prices, while remaining elevated, eased somewhat. The price of gold saw a slight increase, ending the quarter at $1,830/oz.
The Federal Open Market Committee, while not yet hiking their benchmark Fed Funds rate, made it clear in a December meeting that inflation pressures are leading them to rapidly wind-up open market bond purchases and anticipate multiple rate hikes in 2022, beginning as early as March. As we noted last quarter, the Fed has taken its foot off the liquidity gas pedal, with a focus that has shifted to reining in price pressures in an expanding economy.
In spite of many socioeconomic crosscurrents, demand as reflected by manufacturing and services measures at year end is strong, with ISM data reflecting a 19th consecutive month of growth. Labor markets remain a paradox — an unemployment rate of 3.9%, ample job openings (10.6 million in December), but with some 3.6 million less workers than before the pandemic, as many workers remain on the sidelines. Some are there by choice and others are there for a variety of reasons, including caring for children or elders and fear of returning to work while COVID-19 remains prevalent.
The combination of demand, supply constraints, and fewer workers is keeping inflation worries front and center as we enter 2022. Core CPI increased by 6.8% over the year, a trend all are watching closely.
Omicron variant surges across the world have reminded us that, as much as we long for a reprieve, the pandemic is not yet over. Yet societies and markets continue to persevere, and as the economic and market growth reveals, are finding ways to succeed despite the severe challenges. Cautious optimism remains a positive force that we can all embrace.
As always, please call us to address your questions, and make sure to apprise your advisor of any changes to your financial situation.