2021 was an incredible year for investors. The S&P 500 rose 27% in 2021, hitting 70 all-time highs in the interim. That’s the most new records for the benchmark index since the 77 it set in 1954. For the first time in its history, all of the sectors in the S&P 500 also posted double-digit gains.. That said, the U.S. market is now trading at 26x earnings. The energy sector ruled in 2021, delivering its largest gains in 12 years. Canadian markets essentially matched U.S. market returns. Here’s a round up of asset returns for stocks and bonds in 2021.
The following returns for stocks and bonds in 2021 is courtesy of DataTrek. Keep in mind the returns provided do not include reinvested dividends.
Starting off with whole-world, regional and US major markets:
- MSCI All-World Equity Index: +16.6 percent
- MSCI All-World ex-US Equity Index: +4.8 percent
- S&P 500: +26.9 percent
- Russell 2000: +13.7 percent
- NASDAQ Composite: +21.4 percent
- NASDAQ 100 (the QQQs): +26.8 percent
- MSCI EAFE (non-US developed economies): +7.8 percent
- MSCI Europe: +13.4 percent
- MSCI Emerging Markets: -5.5 percent
Here’s some added context including some 3-year numbers, courtesy of Seeking Alpha. The ongoing dominance of U.S. markets is truly incredible.
Individual country returns, clustered by major developed/emerging markets
- S&P 500: +26.9 percent
- TSX Canada +21.7 percent
- MSCI Switzerland: +18.0 percent
- MSCI France: +16.9 percent
- MSCI United Kingdom: +13.1 percent
- MSCI Australia: +3.7 percent
- MSCI Germany: +3.2 percent
- MSCI Japan: -0.9 percent
- MSCI Taiwan: +25.5 percent MSCI Russia: +14.9 percent
- MSCI India: +14.0 percent
- MSCI South Korea: -9.5 percent
- MSCI China: -22.5 percent
- MSCI Brazil: -24.3 percent
Keep in mind that with dividend reinvestment, Canadian stocks essentially matched U.S. markets.
Here are US large cap sector returns, ordered by best to worst 2021 returns:
- Energy: +46.4 percent
- Real Estate: +41.7 percent
- Commodities +41.3 percent
- Financials: +32.5 percent
- Technology: +33.7 percent
- Consumer Discretionary: +27.6 percent
- S&P 500: +26.9 percent
- Materials: +25.2 percent
- Health Care: +24.2 percent
- Industrials: +19.5 percent
- Communication Services: +15.2 percent
- Consumer Staples: +14.3 percent
- Utilities: +14.2 percent
In Canada, energy ruled (up 83%) along with REITS (34.2%) and financials (35.5%) Bitcoin had a solid year as well, up over 45%.
Purpose Diversified Real Asset Fund (PRA) up 23.8%. This fund is offered as a commodities proxy, an inflation hedge.
For U.S. accounts, investors might look to Invesco DBC, commodity index tracking fund.
Gold was down by over 4%.
Those return-free bonds 🙂
- Canadian bond universe (XBB) -down 2.9%
- Canadian short term bonds (XSB) down 1.2%
- Canadian corporate bonds (XCB) down 1.9%
- U.S. long-term treasuries (TLT) down 4.9%
- U.S TIPS (TIP) +5.9%
TIPS are Treasury Inflation-Protected Securities. You can access Canadian dollar versions via BMO ETFs. It may be wise to hold some TIPS in 2022 (within any bond mix) as well as inflation runs its course.
The Balanced Portfolios
I will soon update the ultimate asset allocation ETF page. As a teaser, the iShares site offers these returns for 2021 …
- XGRO returned 16.0%
- XBAL returned 11.6%
Returns projections for 2022
The following is courtesy of Seeking Alpha.
- Breakdown: “Marginally less accommodative monetary policies may weigh on equity valuations. As a result, we expect returns on the asset class to be more muted in 2022. Over the medium term, though, we believe a focus on quality growth companies still makes sense. Coming into a period of sub-par returns, active management and skillful stock selection will be key.” – Barclays
- “Our positive base case and the prospect of real yields remaining in negative territory leave us particularly bullish on equity markets, especially in the first half. We expect to see some compression of price/earnings ratio multiples for the S&P 500 as rates rise. However, strong earnings growth could still translate into about a 10% total return, in our view.” – BNP Paribas
- “While we acknowledge that absolute equity valuations are elevated, this is true for all major asset classes relative to history. We expect global earnings to grow 8% in 2022; this should support a reasonably strong year for equity markets overall and our targets in each region imply about an 11% total return in global equities.” – Goldman Sachs
- “The core of our cautious 2022 view on the S&P 500 is our belief that during a midcycle transition, price-earnings ratios typically compress. The median S&P 500 stock has corrected 15% from its 52-week high. However, the index is down only 3.5%. What’s keeping the index aloft is that the 15 largest companies now account for 40% of the index’s market capitalization. Consider rebalancing portfolios: U.S. equities versus non-U.S.; growth versus value; cyclicals versus defensives; mega-cap versus small- and mid-cap stocks; and active versus passive management.” – Morgan Stanley
Santa sets the stage for a January rally offers Lance Roberts at RIA Advisors.
No one knows what will happen of course, but on Twitter I offered …
Click on my Tweet and within the thread you’ll see my comment on January returns after a year that includes (no recession) and a Santa Claus rally. Yes, Santa made another late December appearance.
Another year of solid growth?
Most economists are predicting 4-5% global GDP growth in 2022. Earnings growth estimates for U.S. stocks are in the area of 8%. Canadian earnings are likely to follow along. Barring any 2022 black swan event, it could be another solid year for stocks. I see many projections for returns in the 10%-15% range. But of course, no one knows what will happen. And most prognosticators were way off in 2021. Who predicted near 30% returns for U.S. and Canadian stocks?
It will be an interesting year as we (likely) move the other side of the pandemic in 2022. The key is to invest within your risk tolerance level and stay the course. Rebalancing is paramount. The markets can always throw us a few curveballs along the way.
The pandemic is always the wild card.
You must read my epic post on MoneySense – Making sense of the markets: 2021.
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