indicatorMarket Commentary

Commentary for December

By ATB Investment Management Inc. 10 January 2022 2 min read

Details of the COVID-19 Omicron variant first emerged on Nov. 26 immediately sending equity markets into a sell-off. As data through mid-December showed that despite higher transmissibility, outcomes appeared less severe, markets soon recovered ending near or at new highs by month-end.

Below are total returns in Canadian dollar terms for December and year-to-date respectively:

Index December, 20211 Year-to-date, 20211
S&P/TSX Composite Index 3.1% 25.1%
S&P 500 Index 3.0% 27.5%
MSCI EAFE Index 3.7% 10.2%
FTSE Canada Universe Bond Index 1.7% -2.5%

As the Omicron variant’s heightened transmissibility was realized, restrictions were put back in place, particularly around travel and social gatherings. Businesses have also been impacted, although less than lockdowns from early waves, and more from disruptions surrounding isolation requirements as opposed to operating restrictions. Vaccine uptake continues to improve with the addition of 5- to 11-year-old children becoming eligible for the vaccine in November. Canadians with at least one vaccine accounted for 83% of the population in December, a 3% increase from November.  

Canada had another exceptionally strong employment report adding 153,700 jobs2 in November—15,400 of them in Alberta—dropping the Canadian unemployment rate to 6.0% from 6.7%. Significant jobs were added within the manufacturing and health care sectors. 

Inflation continues to weigh on central banks with both the US and Canadian consumer price index (CPI) reaching multi-decade highs, and the US recording its highest reading since 1983 at 6.8%. Factoring in an improving job market, central banks in developed markets have shifted to a less dovish tone, signaling the possibility of quicker measures to clamp down on inflation. In its December meeting, the Bank of England was the first to raise interest rates, which went up by 15 basis points. Although rates generally fell through December—helping to boost returns—bonds overall are still down roughly 2.5% for 2021, becoming the worst year for bonds since 1994.  

By the end of December, Canadian and international markets had recovered, but had not achieved new highs. Energy was one of the sectors that saw the most volatility for the month. Crude oil prices declined sharply on thoughts that Omicron would dampen demand, but as fears subsided prices recovered, ending the month at about $77US3. Natural gas prices also declined as LNG shipments helped to curb the shortages in Europe. Europe's natural gas problems are expected to continue through 2022 as a result of geopolitical issues from Russia limiting supply. Prices for natural gas in North America have fallen roughly 40% from October’s highs—prices not seen since early 2014.

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