What a year! 2021 is not over, but there have been many unexpected twists and turns. Number one, of course, is the vaccine development and rollout followed by the Delta variant. Second is the closely linked incredible economic and market rebounds we have witnessed.
If asked a year ago whether events would have transpired as they did, most would likely have said, “that is pie in the sky prognostications.” Yet here we are with the holidays upon us and weeks before year-end, the equity markets have seen incredible returns.
The often-quoted S&P 500 has returned of 25% so far, this year1. The high stock market appreciation wasn’t the only surprise this year, the lack of volatility and minimal declines was also a very unique circumstance. (Please keep in mind the S&P 500 is an index of U.S. large cap stocks and not a proxy for the overall stock market. Further, the S&P 500 is increasingly driven by a handful of stocks. There are about 5900 publicly available U.S. stocks2, most being smaller companies. Large cap stocks are just one asset class included in a well-diversified portfolio.)
Stocks are often categorized as “risk assets” for good reason. Stocks do not guarantee investors will see return of their capital. Additionally, day-to-day, month-to-month and year-to-year, stocks often experience volatility and declines. 2021 Year-to-Date, the S&P 500 experienced a 5% intra-year declined. The last 42 years reveals intra-year declines of 5% or less do not happen often. In fact, intra-year declines of 5% or less have only happened in three other calendar years. (A yellow line has been placed on the chart to help visually see this uniqueness.) If the data holds until year-end, 2021 will go down in the record books as a very unique year.
There are many aspects to portfolio construction and management. Analysis of capital markets and monitoring valuations are the most obvious. Market statistics are often overlooked or never recognized, yet market statistics offer the canvas for portfolio architects to render portfolio designs. Each month, quarter and year adds to the historical record to draw upon. Individual portfolio design combines current market assessments and understanding statistics to matching client needs and risk tolerances.
The holidays are a special time for us to reflect on our blessings and be thankful for those around us.
1Source: Morningstar through 11/18/2021. 2JPMorgan Asset Management
The opinions expressed are those of Heritage Financial and not necessarily those of Lincoln Financial Advisors Corp.
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and a widely recognized, unmanaged index of common stock prices. You cannot invest directly in an index. Diversification may help reduce, but cannot eliminate, risk of investment losses. CRN-3935873-112921