Index returns: 2021 vs. 2023
Source: Bloomberg Finance, L.P. Trading days excluding weekends and holidays. Data represent returns from January 1, 2021–December 31, 2021, and October 1, 2022–February 8, 2023. International stocks represnted by the MSCI ACWI ex USA Index, which captures returns from large- and mid-cap stocks across developed markets outside the U.S. and emerging markets.
- U.S. stocks fell this week, halting a rally that began tentatively in the fourth quarter of 2022 with markets paring losses from earlier in the year. Beginning in January 2023, however, investor sentiment improved notably, driven by hopes for a less hawkish Fed and a potential soft economic landing.
- Against this backdrop, many investors have begun to question whether we have entered a new bull market. Of course, only time will tell the market’s direction. More certain, the composition of returns in the current market rebound is very different from that of the 2021 rally, as the chart shows.1
- Said another way, investors were able to generate outsized returns in 2021 simply by sticking with the S&P 500, which returned 27% for the year. It strongly outperformed other major market indexes, as large-cap growth-oriented technology stocks drove the S&P amid the prevailing zero interest rate environment.
- While at a high level, the rally in global stocks may look similar to the one that began two years ago, the composition of returns since October 2022 has been the mirror image.1 International stocks (developed and emerging market) have outperformed the S&P 500, reasserting themselves, as higher rates have disproportionately impacted U.S. markets and the U.S. dollar has underperformed after peaking in late October 2022. Within the S&P, value stocks also have outpaced growth.
- Major questions remain about how long the current rally can last. Yet today’s changing market playbook highlights the importance of flexibility and active management, as returns are increasingly generated from sources outside the U.S.
