U.S. equities are on pace to gain more than 20% in 2021, and it's been one of the smoothest rides in recent memory.
The easy-riding escalator to no-stress returns was briefly interrupted in September, when the S&P 500 fell 6%. But it quickly regained its climb to new highs early in December.
You may believe such an easy ride means a major pullback is imminent. Yet different sectors and investment "themes" have already pulled back, and you may not have noticed.
The volatility below the surface has been hidden by the massive market-cap weightings at the top of the benchmarks. A reminder that five companies — Apple, Microsoft, Alphabet, Amazon and Tesla — comprise nearly a quarter of the S&P 500. Those fab five stocks have gained an average of 40% year-to-date.
For many of the 495 others, things haven't been quite as pleasant. At the tail end of September, half the stocks in the S&P 500 had lost 10% or more from their 52-week highs. More than 60 stocks lost at least 20%.
Some trends observed in recent months add helpful perspective as we look ahead to 2022.
Trend 1
Small cap equities have sold off more than large caps. The Russell 2000 index is down roughly 12% since early November, compared to pullbacks around 3% for the Dow and S&P. Small-caps have been punished since discovery of the omicron variant further threatened our economic recovery. Those concerns seem overblown, however, given Americans' higher vaccination rates and the general comfort level among consumers to live, shop and travel more normally compared to earlier stages of the pandemic.
