U.S. equities rose in the quarter despite a weak November due to the fear over rising cases of the Omicron variant. By year-end, the worries subsided as the economy and corporate earnings remained stable.
European equities were positive in the quarter whereas emerging markets (EM) equities lost value. China was the worst-performing market in Asia as concerns rose over new lockdown restrictions that would hinder the economy. U.S. dollar strength in the quarter was an additional headwind to both European and EM equities.
In December, the Fed expressed a more hawkish tone by communicating that they will reduce their asset purchases by a larger amount than originally planned. With the updated reduction in asset purchases, the Fed will be on track to end its taper program by March of 2022. By revising their taper timeline, the central bank acknowledged the growing risk of persistent inflation. Chairman Powell has expressed that “rate liftoff” is unlikely during tapering, which insinuates that the first rate hike may happen as soon as March.
The treasury yield curve experienced volatility across maturities due to uncertainty of lasting inflation and central bank policy tightening. The short-to-intermediate portion of the yield curve ended the quarter higher as the market digested tighter monetary conditions. Investment grade (IG) spreads widened by approximately 10 basis points over the quarter while high yield (HY) spreads marginally tightened. Credit spreads across IG and HY continue to be below pre-pandemic levels.
Commodity prices rose due to supply constraints and elevated demand. Energy-related-assets faced heightened volatility as OPEC+ signaled they would increase production. The Case-Shiller Home Price Index remained persistently high as demand for U.S. real estate continued to outpace supply.
To view the fourth quarter reports, click on the links below: