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U.S. Equities Market Attributes March 2022

S&P Target Date Scorecard Year-End 2021

U.S. Equities Market Attributes February 2022

U.S. Equities Market Attributes January 2022

S&P Kensho New Economies Commentary: Q4 2021

U.S. Equities Market Attributes March 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes March 2022

MARKET SNAPSHOT

March Madness marched on, as the S&P 500 scored a three-pointer, up 3.58% for the month and up 8.62% from its recent March 8, 2022 low.  While the month left the index off 4.95% for Q1 (and YTD; down 5.55% from the 2022 opening day closing high), the game continued under heightened interest rates (which now appear to be scheduled) and prices (which appear to be constantly increasing), as consumers continued to roar from the sidelines, with concerns that their voice (willingness to spend, compared to their ability to spend) may get sore (and threaten the score).

While the market was our monetary center of attention, the dominating news story issue was the continuation of the Russia-Ukraine conflict.  At month’s end, there were some positive signs that talks may lead to an end (but not immediately); the world has been changed, as likely will future planning, events and reactions.

As for the market fundamentals, earnings, sales, dividends and buybacks posted records for Q4 2021, while cash flow and cash resources fell short of records but remained impressive.  All 11 S&P 500 sectors were positive for the month (with 315 issues up and 81 up at least 10%), as the market traded past higher interest rates and inflation, with limited impact from the Ukrainian situation (though some attention is being paid to companies that may participate in an eventual rebuild).  The turnaround still left the YTD return down 4.95% (after 2021’s 26.89% gain, 2020’s 16.28%, 2019’s 28.88% and 2018’s -6.24%), as Energy stocks remained hot, up 37.66% YTD, with Utilities the only other sector in the black (up 3.96%).  Breadth was also negative, with 192 up and 94 up at least 10%, and 312 down, as 181 issues were down at least 10%.

April, which hopefully extends April Fool’s Day (up 67% of the time, compared with 52% for all days) to equity holders, is scheduled to focus on earnings, as over two-thirds of the issues will report by the end of the month, along with their updated guidance for 2022 (and the impact of inflation and supply issues).  Unscheduled is the Ukraine situation and politics, with the key question being consumers’ reaction to rising prices.

The S&P 500 closed at 4,530.41, up 3.58% (3.71% with dividends) from last month’s 4,373.94, when it was down 3.14% (-2.99%) from the prior month’s 4,515.55 close, when the index was down 5.26%
(-5.17%).  The index was down 4.95% YTD (-4.60%), and the one-year period was up 14.03% (15.65%); it was up 33.79% (38.35%) from its pre-COVID-19 Feb. 19, 2020, closing high.  The Dow® ended the month at 34,678.35, up 2.32% (2.49% with dividends) from last month’s close of 33,892.60, when it was down 3.53% (-3.29%) from January’s close of 35,131.86, when it was down 3.32%
(-3.24%), and from December 2021’s close of 36,338.30, when it was up 5.38% (5.53%).  The YTD period was down 4.57% (-4.10%), and the one-year period was up 5.24% (7.30%).

The S&P 500 reversed course in March, as it adjusted to current and future events: Russia-Ukraine, seven possible interest rate hikes (with the potential of them not all being 0.25% each), and continued inflation—but potentially an end in sight (H1 2023).  For the month, the index posted a 3.58% gain, after opening the year with back-to-back declines (-3.14% and -5.26%).  Volatility decreased, as inflation concerns replaced COVID-19, and then global conflict replaced inflation, with inflation again ahead at month's end, while intraday volatility (high/low) averaged 1.70%, compared to February's 1.87% (January was 2.06%, as 2021 was 0.97%).  Since Biden won the Nov. 3, 2020, U.S. election, the index has gained 34.47% (37.30%), with 69 closing highs since his Jan. 20, 2021, inauguration.  The bull market was up 102.49% (108.96%) from the low on March 23, 2020.  The index closed 5.55% down from its Jan. 3, 2022, 4,796.56 closing high.

Q4 2021 earnings and sales have not just beat expectations (as they did in Q1, Q2 and Q3 of 2021), but they set new quarterly records.  For the quarter, 378 issues have beaten operating estimates (75.6%), with 102 missing and 20 meeting, as 389 (78.0%) have beaten on sales.  Q4 2021 posted a preliminary 9.0% increase over Q3 2021 and a 48.5% increase over Q4 2020.  For 2021, the year posted a 70.1% gain over 2020, with the 2021 P/E at 21.8, after 2020’s 22.1% earnings decline over 2019.

President Biden gave his State of the Union address, emphasizing his response to the Russia-Ukraine conflict and his plans to reduce rising costs, and he outlined progress on COVID-19 and current spending programs before Congress.

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S&P Target Date Scorecard Year-End 2021

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Hamish Preston

Director, U.S. Equity Indices

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Fei Wang

Senior Analyst, U.S. Equity Indices

SUMMARY

  • The S&P Target Date® Scorecard provides performance comparisons and analytics covering the target date fund (TDF) universe.
  • The S&P Target Date Index Series offers representative benchmarks for TDFs. The series is investable, comprises consensus-derived asset allocation weights, and its composition is known in advance of evaluation periods.
  • S&P Dow Jones Indices also produces S&P Target Date Style Indices. The “To” style indices aim to reduce the impact of market drawdowns around the expected retirement date, while the “Through” style indices aim to mitigate longevity risk—the risk of outliving one’s assets in retirement.
  • 2021 was a positive year for U.S. equities, and the S&P 500® (up 29%) outperformed the S&P MidCap 400® (up 25%) and S&P Small Cap 600® (up 27%) for the fifth consecutive year. After renewed optimism over the U.S. economic outlook provided tailwinds for smaller, more domestically focused companies, large caps proved more resilient to inflation worries and virus variant concerns.
  • Unsurprisingly, S&P Target Date Indices with higher equity allocations outperformed: far-dated vintages posted higher returns than their nearer-dated counterparts, and “Through” style indices outperformed their “To” style counterparts.
Exhibit 1

  • As has been typical in our reports, near-dated S&P Target Date Indices had higher risk-adjusted performance than their far-dated counterparts. The risk reduction from allocating more heavily to fixed income more than compensated for lower performance
Exhibit 2
  • Similarly, near-dated “To” style indices posted higher risk-adjusted performance than their “Through” style counterparts, especially over three- and five-year horizons. But far-dated “Through” style indices’ higher performance more than compensated for higher volatility, especially over the 10-year horizon.
Exhibit 3
  • TDFs with more assets typically outperformed their smaller counterparts; asset-weighted returns were higher than equal-weighted returns for most vintages over one-, three- and five-year periods. However, longer-dated TDFs with fewer assets outperformed in 2021.

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U.S. Equities Market Attributes February 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes February 2022

MARKET SNAPSHOT

S&P 500 performance for February (-3.14%) followed January (-5.67%) on the downside, while the market continued to adjust (reallocate) itself for an expected slower (and more expensive) economy. While the Ukraine situation dominated the moral headlines and wreaked havoc on the market, with a knee-jerk reaction to an expected event, it was the economy that ruled the market. And for February, the economy was defined by increasing inflation stats (7.5% CPI, 9.7% PPI, and 6.1% PCE) and oil's return to USD 100 (last seen in July 2014). More 0.25% interest rate increases are expected at the FOMC meeting on March 15-16, 2022, with a few expecting it to grow to 0.50% (and quantitative tightening to start soon after the meeting). Given current and expected stats, -3.14% (-8.81% from the Jan. 3, 2022, closing high) may not seem bad after a 114% rise from the March 23, 2020, low (41.65% from the pre-COVID-19 Feb. 19, 2020, closing high), especially since there have been no corrections since the March 2020 low. What was keeping the market up and countering the fears around inflation and the Russia-Ukraine conflict, was strong U.S. economic fundamentals) that point to growth, as demonstrated by wealth (home and equity values), consumer spending, employment (4.0% unemployment) and labor demand, wage growth (5.7%), and expected record growth in earnings (8.7% for 2022 and 9.6% for 2023). Inflows continued to play a strong supporting role, with a returning cameo appearance from “buy the dips". As for March, developing issues around the Russia-Ukraine conflict could have a major impact, and any escalation would affect the markets. At this point, however, the market appears to have accepted the situation (even as it continues to refine its reallocations) and focused on “home" issues, leaving inflation costs and its impact on growth as potentially the major March issues (meaning that issues that can demonstrate their ability to cope with higher prices should do better).

Historically, February gains 53.8% of the time, with an average gain of 2.88% for the up months, a 3.46% average decrease for the down months, and an overall average decrease of 0.05%. For February 2022, the S&P 500 was down 3.14%, trading in correction territory but not closing there. In the forward March month, historically, the index posts gains 60.6% of the time, with an average gain of 3.34% for the up months, a 3.85% average decrease for the down months, and an overall average increase of 0.51%.

The S&P 500 closed at 4,373.94, down 3.14% (-2.99% with dividends) from last month's 4,515.55 close, when the index was down 5.26% (-5.17%), and from December's close of 4,766.18, when it was up 4.36% (4.48%). The YTD return was -8.23% (-8.01%), the three-month return was -4.23% (-3.89%), and the one-year return was 14.77% (16.39%), with the index up 29.17% (33.40%) from its pre-COVID 19 Feb. 19, 2020, closing high. The Dow® ended the month at 33,892.60, down 3.53% (-3.29% with dividends) from last month's close of 35,131.86, when it was down 3.32% (-3.24%) from the prior month's close of 36,338.30, when it was up 5.38% (5.53%). The YTD was down 6.73% (-6.43%), the three-month return was down 1.71% (-1.25%), and the one-year return was up 9.57% (11.59%).

Hopefully, the saying, "So goes January, so goes the year," is not true, but for this year, “So goes January, so goes February" was. After the new year opened with a new closing high (Jan. 3. 2022; 4,796.56), it was all downhill, both for January (-5.26%) and February (-3.14%). The S&P 500 switched from 15 months of posting at least one new closing high (starting November 2020) to posting its first official correction (Feb. 23, 2022; 4,225.50, -11.91%) since Feb. 27, 2020, which ended as a bear market, with a 33.93% decline.

Last month's loss was blamed mostly on inflation, as it overtook COVID-19 on the concern list. For most of this month, global conflict replaced inflation (through the correction entry), but inflation (costs of materials, labor, pass-throughs, etc.) fought back, as month's end found it slightly beating out secondplace global conflict, with COVID-19 a distant third. Going into March, inflation appears to hold the edge for concern, as the Fed's March 15-16, 2022, meeting is expected to take the winner's 0.25% increase over the feared 0.50%.

February posted no new S&P 500 closing highs, an event not seen since October 2020, as momentum stopped. The index closed up 29.17% (33.40%) from its pre-COVID-19 Feb. 19, 2020, closing high (90 new closing highs). Since Biden won the Nov. 3, 2020, U.S. election, the market has gained 29.82% (32.38%), with 69 closing highs since his Jan. 20, 2021, inauguration. The bull market was up 95.49% (101.48%) from the low on March 23, 2020. The index closed 8.81% lower than its Jan. 3, 2022, 4,796.56 closing high, and down 8.23% YTD.


U.S. Equities Market Attributes January 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

KEY HIGHLIGHTS

U.S. Equities Market Attributes January 2022

MARKET SNAPSHOT

"So goes January, so goes the year" is true for the S&P 500 70.97% of the time (since 1926), but it has not worked for the past two years, and it has been true 50% of the time over the past 10 years. For this January, the index declined 5.26%. During the month, it reached -11.40%, surpassing the worst January in history, 2009's 9.87% decline (2009 went on to post a 23.45% gain), but it recovered over half of that level by month-end. As for volatility, the average daily high/low spread was 2.06% (Jan. 24, 2022, was 4.61%), compared with 2021's 0.97%, with 7 of the 20 days declining at least 1% and 2 up that amount.

Volatility returned with a vengeance, as the bond vigilantes failed to dominate (although they did make an appearance), and intraday swings returned (average daily was 2.06% compared with 0.78% for January 2021) to make or "broke" day traders, who were willing to pay a high premium for option strategies. Trading imbalances were plentiful (but with few non-guidance-related ones). Reallocation and shifts to value from growth, some selective profit taking (that the market didn't already adjust for), and selling overpowering buying are the market's ways of claiming that the decline is temporary (although no one dared use the word "transitory"). For the month, the S&P 500 crossed the correction point intraday, down 11.97% on Jan. 24, 2022, from the January closing high), though it never closed there, and closing prices are the index's measurement for bull and bear classification. Inflation was the main concern, as the stats (CPI, PPI, PCE, etc.) pointed to more inflation for 2022, with hope for better stats at year-end. The higher inflation fears translated to market action via stocks being more susceptible to interest rates (both higher and lower) and expected consumer pull back, which could affect the economy. Some spoke of the Fed's preference for interest rate hikes (five expected, with some speculating on a 0.50% one) without balance sheet action, as the feared issue would be an inverted yield curve, resulting in the use of the word "recession" (banned in some areas). Eventually regressions tend to return, now or later, but the concern now is whether a shaky landing (few see a soft one) is viable, but this may only be possible if consumers continue to spend and companies are able to continue to pass along costs (which could be helped by the continuance of supply issues). 


S&P Kensho New Economies Commentary: Q4 2021

TOP THREE FROM ACROSS THE NEW ECONOMIES

Virtual Reality (10.8%):Facebook started a global metaverse fever by rebranding and shifting financial focus to Meta in late October 2021. In essence, a metaverse encompasses a network of 3D virtual spaces, often accessed through virtual reality or augmented reality. Riding this wave, virtual reality rose to the best-performing subsector in Q4 2021. Chipmakers benefited from the accelerated demand for semiconductor chips, becoming the key performance driver for the virtual reality subsector. Shares of Synaptics Inc. soared, with strong consecutive quarterly revenue growth, thanks to its successful business shift from smartphone chips to the Internet of Things (IoT). Himax Technologies, a leading display driver maker, posted impressive Q4 revenue and earnings. Investors have piled into Nvidia to take advantage of various technology trends such as video gaming, self-driving cars, and the metaverse.

Autonomous Vehicles (8.2%):While supply chain issues brought on by COVID-19 remain, electric car manufacturers achieved an impressive number of car deliveries. XPeng, Ford, and Tesla all delivered a strong performance, posting nearly a triple-digit year-over-year growth in deliveries this quarter. Semiconductor suppliers, such as On Semiconductor, Nvidia, and Ambarella were also among the top contributors, thanks to their vital position in various technology trends.

Cyber Security (8.0%):Tailwinds from the ongoing digital transformation, increased focus on online security, and remote work continued to support the demand for next generation security. The draw of metaverse has ignited the investors' appetite for network stocks. Limelight Networks, Broadcom, and Juniper Networks were the top three contributors this quarter. Despite disappointing numbers across the previous five quarters, Limelight Networks attracted much interest over strong viewership in the media streaming sector. Broadcom announced better-than-expected fiscal Q4 results, with the approval of a USD 10 billion stock buyback plan. Juniper Networks is well positioned as a leading provider of networking solutions.

BOTTOM THREE FROM ACROSS THE NEW ECONOMIES

Digital Communities (-14.9%):With the gradual reopening of the global economy and growing supply chain issues, Digital Communities posted a poor performance in Q4. The biggest contributor to this underperformance was iQIYI. In addition to the pressure from China's tightening of the regulatory environment for tech companies, iQIYI's advertising revenue along with its number of subscribers declined over the past three consecutive quarters; its stock price dropped by 43% in Q4. Snap dropped 36% due to its disappointing earnings report, as well as its new user privacy protection initiative that prevents third parties from collecting user data for advertisement targeting. Another notable underperformance was Vimeo, whose forward guidance for 2022 was below the market's expectations.

Alternative Finance (-16.6%):Cryptocurrency Q4 performance was volatile, with lackluster net gains. In October, Robinhood's reported revenue declined by 35% since the prior quarter, dragged lower by the slowdown in crypto trading. Its stock price crashed by 58%. In an uncertain macroeconomic environment, investors have curtailed their expectations about financial lending services and payment systems, which saw Upstart Holdings and Paysafe to decline by nearly 50% in Q4.

Distributed Ledger (-16.6%):Along with cryptocurrencies, Distributed Ledger experienced a harsh winter in Q4. With the risk of persistently high inflation and potential Fed rate hikes in the background, as well as the constant battle between regulation and the market, companies like GreenBox, Ebang International, and OneConnect Financial Technology dropped between 40% and 50% in Q4. The biggest underperformer, SOS Limited, was down by 61% due to its USD 90 million of new stock offerings in November, which presented a negative signal to the market.


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