Performance – November 2021


The development of the pandemic again attracted very strong attention in November. The number of people being infected rose quite a lot in the course of the month, and especially Europe is affected strongly. For instance, at this time Germany reports 58,000 new cases every day, which is twice the amount compared to last winter. Luckily the number of coronavirus-related deaths is far from the level of last winter, but unfortunately the trend is rising.

Due to the lower number of people being hospitalised and deaths compared to last winter, the market has taken the development calmly. Another reason is that over the past couple of months we have seen improvement in the macroeconomic indicators - especially in the US. Until 25 November, most equity markets reported positive returns - and then the news broke about the new variant Omicron. Right now we know very little about the mutation, except that it spreads very easily, yet the course of the disease should be less severe. A crucial issue to the financial markets is whether the existing vaccines will also be effective against the new variant. So far, we are still awaiting announcements from the pharmaceutical companies, (Pfizer thinks it will be able to publish results within the next fortnight). Of course, the uncertainty is putting a damper on a market that has risen considerably in the course of 2021.

Also, announcements from the Federal Reserve in the US add to the uncertainty. The Fed seems to be more concerned that the current high inflation rate will last longer than first expected. This may result in a faster reduction of the current programme of bond purchases. Over the past couple of months, expectations of the number of interest-rate hikes from the Fed in 2022 have increased from one to almost three hikes (currently at 2.4 - see figure 1). Rising interest rates need not necessarily be a challenge for the equity market provided we are still seeing growth and earnings, and therefore we follow this development closely.

Figure 1: Expectations of the Fed

(Source: Macrobond, 2021)

Asset class performance
As mentioned above, until a few days before the end of the month, there was every indication of a decent positive return on the global equity market (excl EM). However, the combination of the news of the new virus variant, Omicron, and the comments on the part of the Fed was more than the markets were able to endure and we ended at about 0%. Falling yields resulted in positive returns on traditional bonds and corporate bonds with a high credit rating. The high-yield components were affected by widening credit spreads and ended the month with negative returns.