Richard Branson, the iconoclastic billionaire of the Virgin company empire, completed a flight to space on July 11, 2021. The flight to space marked the first commercial flight under the Virgin Galactic business umbrella and offering a glimpse of what space travel may look like for humans.1 A few days later, Jeff Bezos would do the same under the Blue Origin company. For now, space flight seems to be for billionaires and a select few adventurous passengers.
Not every market got off the ground in July. While the S&P 500 rocketed ahead with a 2.38% return for the month, the MSCI Emerging Markets index dropped 6.69%. The United States markets seemed to be unstoppable in their recovery while developing markets were struggling to lift off in 2021.2
On August 15th, the Taliban fighters began entering Kabul, the capital of Afghanistan. As Afghan President Ashraf Ghani fled the capital, the Islamist militant group quickly took over as the Western-backed government collapsed quickly. After a long twenty years of U.S. support and military presence, the gut-wrenching evacuation of troops, civilians, and others was reminiscent of the fall of Saigon in April 1975.3
Markets were not to be rattled by the dreadful Taliban taking Kabul. Investors were focused on Jerome Powell, the Fed Chairman. Mr. Powell struck a cautious tone to ending bond purchases gradually and providing hope for a ‘soft landing” of the fiscal assistance offered since Covid first struck. The S&P 500 rallied by 3.04% in August while global stocks picked up. The MSCI EAFE was up 1.79% and the MSCI EM was up 2.63% representing international developed and international developing stocks respectively.4
According to the National Association of Realtors, the median existing-home sale price rose over 18% from the previous year and 89% of homes lasted less than a month on the market. Many factors were driving the red-hot housing market, including incredibly low interest rates, personal high savings from Covid restrictions, and remote workers who are on the move from city centers. Many home listings are busy promoting the “office room” to would be buyers, appealing to the new flexible schedules and in some cases, work from home, permanently.5
Real estate investors were smiling but equity and bond markets were left outside in the cold. The S&P 500 sold off by 4.65% during the month and the MSCI EAFE representing developed international markets dropped by 2.83%. The bond market dropped by .87% as represented by the Bloomberg Aggregate Bond Index. Investors were worried about hawkish monetary policy from the Federal Open Market Committee (FOMC) and the slowing economic data centered around the Delta Variant.6
“Squid Game”, the fictional drama from South Korea is propelling Netflix viewership as it’s new mega series launch. The chilling series allows cash strapped players to compete in children’s games but with deadly consequences. It represents the global reach of Netflix and other streaming services who help pass the time during social distancing measures.7
The market was in full swing in October providing one of the strongest monthly returns and a bounce back from September’s sell off. The S&P 500 rallied 7.01% for the month. The Russell 2000, representing smaller company domestic stocks shot up 4.25%. International markets rallied as well, although it continues to trail the domestic markets for the year and a major bifurcation of investor preferences.8
Japan and France reported their first cases of the omicron variant, a rapidly spreading Covid variant originally detected in South Africa. As in much of the rapidly evolving Covid-19 pandemic, observers were determining how quickly this variant could spread or if the symptoms were less or more severe than other variants. The exact implications of this variant were still being debated and investors were weighing the potential impact to the global economy as we near the holiday season. 9
Investor fears were spreading across equity markets as well. While the S&P 500 index dropped .7% international markets were hit hard. The MSCI EAFE index dropped by 4.63% and the MSCI EM index dropped by 4.07% representing the international developed and international developing markets respectively. Economic activity was slowing as countries imposed basic measures to combat the new covid variant. 10
While the pandemic and the efforts to thwart the coronavirus outbreak have been a challenge, investors and humanity were cheering the implications of a Covid-19 pill by Pfizer. Despite the rapid outbreak of the omicron variant, the Covid-19 pill shows signs and promise of lessening the chance of hospitalizations and death in patients after infected.
Despite the pandemic, markets and humanity displayed an unflappable resiliency to recovering. The rollouts of vaccines, accommodative Federal Reserve Policy, and economic stimulus powered the markets to new highs in 2021. The S&P 500 finished the year up 28.68% in 2021 as large domestic stocks powered higher. The Russell 2000, representing domestic small company stocks, followed behind with a respectable 14.78% return outpacing their long-term average. International stocks finished the year up 11.86% as represented by the MSCI EAFE index. Developing countries were the lone negative group of the major indices, finishing down 2.47% on the year as represented by the MSCI EM Index. Bonds suffered a rare negative year, as the Bloomberg Aggregate Bond Index dropped by 1.54%. There was a major diversion of asset classes, offering diversified investors a solid return for the year.
While 2021 proved to be a year of changing economic and health climates, the world continues to adapt and work towards a full recovery. While the last two years was strange in its eeriness of social restrictions and frightening in health concerns that have riveted the global world, our adaptions and hope preside over the grave challenges. Looking ahead to 2022, we expect a continued recovery, both domestically and globally offering hope that the world is mending itself.
I leave you with this. “Nothing is impossible, the word itself says ‘I’m possible.’” Audrey Hepburn
Investment in the portfolios mentioned in this document may not be suitable for all investors. Past performance is not a guide for future performance and should not be the sole factor in consideration when selecting investments. The price of investments may go up or down and the investor may not get back the amount invested. Your income is not fixed and may fluctuate. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. Levels, bases and reliefs from taxation can change.
Past performance is no guarantee of future returns.
A word about risk: Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in the bond market is subject to certain risks including market, interest rate, issuer credit and inflation risk; investments may be worth more or less than the original cost when redeemed. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuation, economic and political risk, which may be enhanced in emerging markets. Mortgage and asset–backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer credit worthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. High-yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risks than portfolios that do not. Alternative strategies such as arbitrage, hedged equity, market neutral or long/short may result in higher internal transaction costs and tax consequences of short-term gain. Funds may engage in option transactions and short sales. Option transactions involve special risks that may make it difficult or impossible to unwind a position when the fund desires. With short sales, you risk paying more for a security than you received for its sale. In addition to the normal risks associated with investing, merger arbitrage strategies may realize losses if the proposed reorganizations in which the strategy invests are renegotiated or terminated. Other arbitrage strategies may include but are not limited to convertible risk, synthetic convertible risk, convertible hedging risk, and covered call writing risk. In hedged equity strategies, selling index call options can reduce the risk of owning equities, but it limits the opportunity to profit from the increase in the market value of equities in exchange for the upfront cash at the time of selling the call option. Additionally, hedged equity strategies may lose part or all of the cash paid for purchasing index put options. Unusual market conditions or the lack of a ready market for any particular option at a specific time may reduce the effectiveness of a hedged strategy. Diversification does not ensure against loss. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors. Each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
2. Sources, Bloomberg. ®
4. Sources, Bloomberg. ®
6. Sources, Bloomberg. ®
8. Sources, Bloomberg. ®
10. Sources, Bloomberg. ®