December 2021 was a volatile month in financial markets, as the newly named Omicron variant entered our lexicon and FOMC Chair Powell turned hawkish, though, in the end, equities appeared non-plussed by either situation. The S&P 500 enjoyed its best December since 2010, while Canada’s TSX generated a total return of 3.06%. For the full year 2021, stocks had a banner year driven by the impact of fiscal and monetary stimulus on asset prices and a strong recovery in corporate profits. In reviewing the performance of the S&P 500, 434 issues gained for the year, 96 of which climbed more than 50%, seven declined more than 25% and all 11 sectors posted double-digit gains (up from seven in 2020, five of which posted double-digit gains). The top five performers accounted for 32.6% of the total return for the S&P 500, including Microsoft Corp (MSFT.US) at 9.7%, Apple Inc. (AAPL.US) at 8.1% and Alphabet Inc. (GOOG.US) at 7.4%. The one-year graph below highlights the negative correlation between the relative outperformance of growth to value (white line) stocks against 10-year bond yields (red line; note the inversion). This correlation remained strong until Q4 when the flow of funds, words from the Fed, and Omicron combined to disrupt this relationship.
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