2021 Q4 Market Review

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Watch The 2021 Q4 Market Review (Short Version)

Watch The 2021 Q4 Market Review Data and Charts Video

Executive Summary

In a Year of Turmoil, Optimism Reigned on the Markets

At the close of Year 2 of the Pandemic, Canadian and U.S. markets were on fire, buoyed by vaccine optimism and the advancing economic recovery. Omicron waltzed in on the scene in late November, caused some volatility, but once that variant was shown to be milder than the previous ones, the party resumed.

In Canada, the resources/energy and financial sectors, with annual gains of 49% and 37%, respectively, led the performance. Real estate also turned in a 37% return, while representing only 3% of the S&P/TSX index.

However, past highflyers, such as technology, were punished mercilessly. Once investors decide to sell off a name or a sector, the downside is often violent. This is even more so in a small market such as Canada.

Bonds languished, while gold and the Canadian dollar pretty much stagnated. Conversely, oil prices spiked. This stellar performance followed a historic fall in 2020. Mean reversion is a powerful force!

The U.S. market was driven by the larger components of the S&P 500 index: Apple, Amazon, Google, Facebook (Meta) and Microsoft. The top 10 names for 2021 represented a broad cross-section of stocks, which is a healthy phenomenon. There was, however, a dichotomy between the broad top 10 performers and the weight of the top 5 tech giants, who put in a 30% advance. Unsurprisingly, most diversified portfolios lagged the U.S. index due to this preponderance of technology.

2022 at a Glance
Despite all the uncertainty surrounding 2022 and the future of the pandemic, we have identified secular trends that will guide our investment decisions:

  • Demographic shifts (aging population, household formations, immigration);
  • Technological advancement (innovation drivers, promoters and integrators, recipients);
  • Problem-solving (widespread issues affecting many people stemming from complicated problems that few people or companies can solve; solutions have to be durable and resilient).

Specifically, we will be looking for operational leverage (found in manufacturing and retail), low capital use (financial services), high barriers to entry (rail operators), and a constant need for businesses (subcontractors).

Ultimately, our work boils down to this: never letting greed or fear trump level-headedness. Our job is to remain flexible but disciplined, never forgetting that high or low values always eventually revert to the mean.

The whole Exponent team wishes you a very happy New Year 2022, filled with good health and good spirits. As always, do not hesitate to contact us if you have any questions or concerns.

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