Defined Benefit
Defined Contribution
Insurance Assets
Nonprofit

U.S. Stocks Thrive While Global ex-U.S. Shares Lag; U.S. Fixed Income Flat

U.S. Stocks Thrive While Global ex-U.S. Shares Lag; U.S. Fixed Income Flat
clock
4 min 14 sec

In this blog post, I will recap stock and bond performance for equities and fixed income in the U.S. and global markets.

U.S. and Global Equities

The S&P 500 Index was one of the best-performing major indices for the quarter (+11.0%) and the year (+28.7%). While every sector posted double-digit results for the year, returns were mixed in 4Q. For the quarter, Communication Services (0%) was the laggard, while Real Estate (+18%) and Tech (+17%) took the top slots. For the year, the worst sector was Utilities (+18%) and the best was Energy (+55%). Since the market low in March 2020, the S&P 500 is up over 100%.

However, not all stocks enjoyed the same ride. Within the S&P 500, the market capitalization weight of the top 10 stocks in the index reached a record 30.5%, and the P/E ratio of those stocks was 33.2 versus 21.2 for the broad index. Growth stocks outperformed value for the quarter and the year in the large cap space, but mid cap and small cap growth underperformed value for both periods.

The difference in full-year performance across market cap and styles is especially stark. From a pure capitalization standpoint, small cap (Russell 2000: +14.8%) underperformed large (Russell 1000: +26.5%), with outperformance driven by strong results from mega-cap technology, pharmaceutical, and auto stocks. Even more pronounced was the difference between small cap value and small cap growth (Russell 2000 Growth: +2.8%; Russell 2000 Value: +28.3%). The Russell 2000 Value Index was helped by its relatively hefty exposure to more high-performing cyclical sectors such as Energy (+66%), Materials (+30%), and Industrials (+28%). Conversely, Health Care (-21%) is the largest sector for the Russell 2000 Growth Index, and weak results from Communication Services (-11%) also hurt relative results.

Global ex-U.S. stocks were hurt by U.S. dollar strength; the MSCI ACWI ex-USA Index was up 1.8% for the quarter and 7.8% for the year but in local terms it was up 13.0% for the year. The yen sank 10% in 2021 vs. the U.S. dollar, the largest drop since 2014. Japan was up nearly 14% in local terms in 2021 but only 2% in dollar terms. Emerging markets (MSCI EM: -1.3%; -2.5%) did not participate in the stock rally the rest of the world enjoyed. China’s weight in the Index (35%) and poor performance (-6%; -22%) was a key driver. China stocks were hurt by slowing growth and heightened regulation. Brazil (-6%; -17%) was also a notable underperformer. India (-0.2%; +26%) and Russia (-9%; +19%) fell in 4Q but were up for the year. Turkey (-11%; -28%) was the worst performer and the 44% decline in the Turkish lira was also notable. The country is battling high inflation (36% in December) with unconventional monetary policy (lowering rates).

Fixed Income

U.S. fixed income returns were literally flat in 4Q (0.0%) and the Bloomberg US Aggregate Bond Index posted an unusual negative result for the calendar year (-1.5%), for only the fourth time since the inception of the Index in 1976. Spread sectors underperformed in 4Q but outperformed for the year. The 10-year U.S. Treasury yield closed the year at 1.52%, up from 0.93% on 12/31/20 but flat over the course of the quarter. TIPS sharply outperformed the Aggregate for the quarter and the year (Bloomberg US TIPS Index: +2.4%; +6.0%) as expectations for inflation rose. The 10-year breakeven spread, which reflects inflation expectations over the next 10 years, was 2.56% as of year-end. The yield-to-worst for the Aggregate Index ended the year at 1.75%. High yield corporates were top performers for the quarter and the year (Bloomberg US High Yield: +0.7%; +5.3%) and the yield-to-worst for this Index was 4.21% as of year-end. Real yields, it goes without saying, are negative for the Aggregate and High Yield indices given the recent surge in inflation. Leveraged loans (S&P LSTA Leveraged Loan Index: +0.6%; +5.2%) also did relatively well. Municipals (Bloomberg Municipal Bond Index: +0.7%; +1.5%) outperformed Treasuries for the quarter and the year, boosted by robust demand. In general, lower-quality securities outperformed in 2021 across the fixed income spectrum.

Developed ex-U.S. market returns were hurt primarily by U.S. dollar strength for the quarter and the year (Bloomberg Global Aggregate ex-US: -1.2%; -7.0%). On a hedged basis (+0.1%; -1.4%), returns were similar to those in the U.S. Emerging market debt indices posted negative returns for the quarter and year. The JPM EMBI Global Diversified Index (-0.4%; -1.8%) performed better than the local currency JPM GBI-EM Global Diversified Index (-2.5%; -8.7%) as emerging market currencies suffered relative to the U.S. dollar.

Real Assets

Broadly, real assets performed well in 2021. The Bloomberg Commodity Index declined 1.6% for the quarter but was up 27.1% for the year. WTI Crude Oil closed at roughly $75/barrel (the low was $12 in April 2020!) and was about flat for the quarter but up over 50% for the year. TIPS (Bloomberg TIPS Index: +2.4%; +6.0%) performed relatively well for both the quarter and the year. REITs (MSCI US REIT: +16.3%; +43.1%) and infrastructure (DJB Global Infrastructure: +7.5%; +19.9%) were up sharply for the quarter and the year. Gold (S&P Gold Spot Price Index: +4.1%; -3.5%) was up for the quarter but down for the year.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Public Markets

The Magnificent Seven and Large Cap Portfolios: What Institutional Investors Need to Know

Nicole Wubbena
What institutional investors need to know about the Magnificent Seven and large cap stock portfolios
Private Markets

Private Real Estate Falls but REITs Outpace Stocks

Munir Iman
An update on real estate and real assets performance in 4Q23.
Public Markets

Stocks Near a Record High, and Bonds Reverse Course

Kristin Bradbury
Kristin Bradbury analyzes global stock and bond markets in 4Q23.
Private Markets

Private Real Estate Falls While REITs Lag Equities

Aaron Quach
Munir Iman and Aaron Quach assess 3Q23 real estate performance.
Public Markets

Tough Quarter for Stocks, with Bonds Facing Third Straight Annual Fall

Kristin Bradbury
Kristin Bradbury assesses the global markets in 3Q23.
Private Markets

Private Real Estate Falls Again; REITs Gain but Trail Stocks

Munir Iman
Kristin Bradbury, Munir Iman, and Aaron Quach analyze real estate and other real assets' performance in 2Q23.
Public Markets

An Investor's Guide to the Nasdaq-100's Special Rebalance

Mark Wood
Mark Wood analyzes the special rebalance implemented by the Nasdaq-100.
Public Markets

Tech Stocks Lead U.S. Indices Higher; Rate Increases Send Bonds Lower

Kristin Bradbury
Kristin Bradbury assesses the global stock and bond markets in 2Q23.
Private Markets

Private Real Estate Indices Fall; REITs Gain but Lag Equities

Munir Iman
Update on real estate and real assets performance in 1Q23.
Private Markets

Higher Interest Rates Meet Lower Valuations: Implications for the CRE Industry

Christine Mays
Christine Mays provides an overview of the commercial real estate industry in 2023.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.