Stock markets ended off 2021 near record highs as investors shrugged off concerns over the omicron variant and inflation.
The increased speed of bond tapering and the hawkish tone from the Fed has caused bond yields to rise as investors brace for interest rate hikes amid persistently high inflation. As such, the US 10-year and 2-year bond yields have both hit 52-week highs of 1.808% and 0.915% respectively. With Wednesday’s inflation reading coming in at 7.
Moving into 2022, the rise in government bond yields has hurt US stocks as investors started repositioning their portfolios in anticipation of higher borrowing costs. As such, the S&P 500 and Dow Jones Industrial Average have both lost 2.0% and 0.74% respectively. The tech heavy Nasdaq has taken the biggest hit, losing 4.50% as rising yields hurt the lofty valuations of technology stocks the most.
Commodities, as measured by the Bloomberg Commodity Index, ended 2021 up a staggering 27.05%. They have continued their run into 2022 with the index returning 3.52% YTD. The big driver of the advance is oil and natural gas, with Brent Crude advancing 7.43% and natural gas 12.73%, as a tightening market continues to support prices. Metals, on the other hand, have had a subdued start to the year with gold returning -0.73%, followed by platinum and copper with 0.61% and 0.93% respectively.