Sabco® Investment's Monthly Market Report - December, 2021

Sabco® Investment's Monthly Market Report - December, 2021

In December, investor sentiment improved, leading to a positive end to the year for stocks.

European equities outperformed US equities and emerging markets, with a 6.3% increase in euros. The major US indices all experienced gains, with the S&P 500 delivering its third-best monthly performance of the year. Towards the end of the month, the S&P 500 reached a new record high, benefiting from strong capital inflows during the previous two weeks. Performance stocks, particularly in the healthcare and non-cyclical consumer goods sectors, outperformed growth stocks. However, the consumer discretionary sector lagged behind. Tesla (-7.7%) and Amazon (-4.9%) experienced losses in December.

Inflation remained a concern for investors as US inflation reached 6.9%, reaching a level not seen since June 1982. As a result, the Federal Reserve accelerated its reduction of asset purchases from $15 billion to $30 billion per month. However, the impact of the Fed's actions on the markets was tempered by expectations of continued accommodative monetary policy even after the end of asset purchases and the potential increase in rates in 2022.

On the political front, a crisis over raising the US debt ceiling was averted in December. However, the Biden administration's $1.17 trillion stimulus package faced a setback when Democratic Senator Manchin refused to support it.

COVID-19 cases in the US reached new records, exceeding 580,000 new cases on December 30. Despite the surge, the negative impact on markets was limited due to studies indicating that individuals infected with the Omicron variant had a lower likelihood of hospitalization compared to the Delta variant. The US also shortened its isolation policy for COVID-infected individuals from 10 to 5 days, provided they were symptom-free.

In December, US Treasuries had a slightly negative performance, with the 10-year yield rising from 1.45% to 1.51%. The German benchmark rate experienced a more significant increase, climbing from -0.34% to -0.18%. Government bond yields in other eurozone countries also rose, following the trend set by the German rate. High-yield corporate bonds performed well as spreads narrowed, reflecting a pro-risk investor sentiment.

Central banks held their monetary policy meetings in December. The Federal Reserve doubled the pace of its asset purchases reduction, adjusted its economic projections, and signaled expectations of higher inflation and improved labor market conditions, leading to a median projection of three rate hikes in 2022. The European Central Bank confirmed the end of its net asset purchases under the Pandemic Purchase Program in March 2022 and announced a reduction in monetary support. The Bank of England and the Norwegian Central Bank raised their policy rates in response to rising inflation.

The US dollar index remained relatively stable in December. The Japanese yen weakened against the euro and the dollar. The Norwegian krone appreciated, supported by rising oil prices and the central bank's unexpected rate hike. The Turkish lira initially depreciated but experienced a strong rebound towards the end of the month due to a saver compensation program. Bitcoin prices fell by 18%, potentially influenced by the announced change in US monetary policy.

Gold prices rose by 2.9% in dollar terms in December. WTI crude oil experienced a significant increase of 13.6%, recovering from the declines in November. Agricultural commodities performed well with a 3% increase, while industrial metals saw a 5% increase during the month.