All but ignoring the global pandemic, for the third year in a row global stocks saw a double-digit gain, once again powered by U.S. stocks. After two years of high single-digit gains, though, the domestic investment-grade bond market turned in a loss. After a close first half, domestic equities powered away from their global peers. The gains capped a decade over which U. S. stocks have more than doubled the performance of international developed markets and have nearly tripled the gains of emerging market stocks. Last year was far kinder to stocks expressing our preferred characteristics, much more so in the first half than in the second. Value generally outperformed Growth over the four quarters, with smaller Value names turning in strikingly strong gains versus their growthier peers. Though returns in the aggregate were lower than those in the States, performance among international stocks also saw the winners’ column dominated by Value and small-cap names for the year. That general trend eased in the fourth quarter, however.

Historically low yields across the bond spectrum generally failed to overcome the broader rise in rates we saw in 2021. Though credit spreads also remained historically low, the extra income did offer a salve from the losses otherwise seen among Treasuries of similar duration. Interest rates generally were higher on the year, though they remain well below historical levels. Macroeconomic growth stayed robust while inflation remained elevated through year end, and short-term rates surged as investors lifted expectations for less-accommodative Federal Reserve policies. While credit spreads could be qualified as “stable” in 2021, at least compared to the volatility experienced in 2020, term spreads surged and ebbed during the year as investors balanced expectations for ongoing pandemic ills, monetary policy responses to inflation and longer-term macroeconomic growth.