by William Henderson, Vice President / Head of Investments
A shortened Christmas Holiday week pushed markets higher even in the face of increased omicron variant threats and global travel snafus. The Dow Jones Industrial Average rose +0.2%, the S&P 500 Index gained +1.2%, and the NASDAQ gained a healthy +3.1%. Further, year-to-date returns remain well into near-record territory for 2021. Year-to-date, the Dow Jones Industrial Average has returned +19.7%, the S&P 500 Index +27.6% and the NASDAQ +22.2% giving us solid returns across all market sectors. With the healthy returns in risk assets, as expected, bonds sold off. The 10-year U.S. Treasury bond rose by nine basis points to close the week at 1.50%. The fixed income markets react as quickly as the stock market to good news or bad news and each market reminds us why investors own each asset class. Equities remain a portfolio’s return generator and bonds remain a portfolio’s risk management tool.   

As mentioned above, the week gave us mixed news on the pandemic and its impact on the U.S. economy and financial markets. Cases of the omicron variant spread rapidly in pockets of the country, and the government announced an initiative to distribute COVID-19 tests to the public for free. Lastly, regulators approved two new pills that will be available by prescription for those who are sick with COVID-19.  

In a revision to last quarter’s GDP, the U.S. government reported economic growth last quarter was slightly stronger than it had estimated previously. In its final estimate released last Wednesday, GDP growth in the third quarter was 2.3%, an upward revision from the original release of 2.1%. By comparison, GDP accelerated at annual rates of 6.4% and 6.7% in the first and second quarters of 2021, respectively. A report on Bloomberg showed that Christmas shopping, both in person “bricks and mortar” and online was much stronger than 2020. According to the report by Mastercard SpendingPulse, U.S. holiday sales jumped 8.5% from last year as consumers spent more money on clothes, jewelry, and electronics. Sales boomed across the board during the holiday season defined as November 1 to December 24. Many consumers were savvy shoppers and started earlier than normal, most likely due to widely reported supply chain concerns, which in the end, were largely unfounded rumors as most retailers were plentifully stocked with goods.    As we move into 2022, it is important to keep the markets in perspective. Certainly, central banks globally are taking a more hawkish tone and higher short-term rates are a given next year, but that information is already priced into equities. Two questions are typically bantered about: 1) Is the market going higher or lower today? 2) Is today a good day to buy (invest)?  And my answer to both questions is always the same – YES. Yes, the markets will go up or down today and YES, today is a good day to buy (invest). Long-term positive returns on investment portfolios are driven by long-term investment plans and a commitment to sticking to your investment plan. We’ve seen this all year as the market rallies back as quickly as it sold off. Perspective and commitment are what matter the most.