2021 was another eventful year. It feels like several separate years with everything that happened and accompanying mood swings. I tried to highlight notable events in various arenas in Exhibit 1. In Exhibit 2, I tie some of the news stories to the stock market. It shows the weekly % changes in the S&P (green and red bars) and the level of the index (black line).  The annotations are the major stories of the year that [could have] affected the markets.

Exhibit 1 – Notable events in 2021

Exhibit 2 – 2021 S&P 500 Timeline

So how did all this turmoil affect the performance of major asset classes (Exhibit 3)? Oil had a huge year as it recovered from a major selloff in 2020. Bitcoin and other crypto assets also did quite well. S&P 500 (or large cap U.S. stocks) continued to be the best performing stock index with a 29% return. Small Caps and Developed International did about half that. On the bottom of the table are various fixed income sectors. Surprisingly, gold was the worst performer of the bunch, which is counterintuitive given it’s supposed purpose as an inflation hedge (which was off the charts last year). “Off 52-week high” column shows most investments ended the year near their highs (except Bitcoin).

Exhibit 3 – 2021 Performance for Major Categories

Let’s also look at detailed fixed income universe breakdown (Exhibit 4). Riskier equity-like/hybrid bonds as well as inflation-protected securities were the only areas with positive returns. That’s not surprising giving rising interest rates increasing from 0.9% to 1.5% and historically high inflation. Longer term bonds were hit particularly hard with TLT dropping 4.6% but down 13% at its worst level of the year. International bonds also had weak returns driven by the rising dollar.  Here is what I said in last year’s bond review: “It’s quite likely that government bonds pulled forward a few years of performance into 2020 and we might not see much return there for a while.” It played out as I thought so far; however, longer term (3/5/10 year) returns are still respectable even after a weak 2021.

Exhibit 4 – 2021 Performance by Fixed Income Groups

In the next post, I will take a closer look at sector and stock performance.