Q4 2021 market update

Tuesday, January 25, 2022 - 07:41

The following Q4 market update provides context for the investment performance of your charitable assets.

From Cambridge Associates, investment advisor

Market review

The year capped off with impressive gains as risk assets surged in the fourth quarter. Strong economic activity and earnings helped fuel asset prices, overshadowing concerns about inflation, aggressive central bank pivots, and the economic impact of the COVID-19 Omicron variant. Global equities increased by 6.7%, driven by developed markets share growth at 7.8%. Emerging markets stocks declined by 1.3% for a second straight quarter, bringing calendar year performance into the red.

US equities outperformed their developed country peers and recorded multiple all-time highs during the quarter. Following a nearly 30% gain in 2021, US stocks have effectively doubled over the trailing three-year period, delivering their strongest returns in absolute and relative terms over that horizon since the dot-com era. Ten of 11 S&P 500 Index sectors advanced, led by real estate, information technology, and materials. Value-oriented sectors energy and financials gained the least, whereas communication services were flat. Growth and large caps topped their value and small-cap counterparts, respectively, for a third consecutive quarter.

Developed equities outside the US trailed US equivalents by the widest margin since the fourth quarter of 2014. They also underperformed by double digits for a second consecutive calendar year, which last occurred in the late 1990s. Emerging markets equities lagged their developed markets peers by nearly 25 points on the year, their widest underperformance margin since 2013. The US Treasury yield curve flattened, and breakeven inflation rates climbed in the fourth quarter as Treasury Inflation-Protected Securities (TIPS) delivered top gains among US fixed income assets at 2.4%.

The emergence of the Omicron variant in late November initially dampened risk sentiment, but investors turned more optimistic after early evidence suggested it is less likely than previous variants to cause severe disease. However, markets continue to grapple with the uncertain economic impact of surging COVID-19 cases. By the end of the quarter, many countries reported record-breaking case counts and considered stricter containment measures. Potential limits on activity, coupled with the generally tightening policy environment, prompted analysts to downgrade 2022 global economic growth forecasts moderately.

We continue to believe that Thrivent Charitable’s diversified investment approach positions the portfolios well to navigate this challenging market backdrop and generate superior performance.