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S&P Kensho New Economies Commentary: Q1 2022

S&P Latin America Equity Indices Quantitative Analysis Q1 2022

U.S. Equities Market Attributes March 2022

S&P Target Date Scorecard Year-End 2021

U.S. Equities Market Attributes February 2022

S&P Kensho New Economies Commentary: Q1 2022

The S&P Kensho New Economy Indices seek to track the industries and innovation of the Fourth Industrial Revolution

TOP THREE FROM ACROSS THE NEW ECONOMIES

Drones (11.5%): 2022 kicked off with a challenging start for technology and innovation stocks under pressure from inflation, rising rates and concerns over a potential recession.  The outbreak of the Russia-Ukraine conflict on Feb. 24, 2022, significantly affected the global economy.  Drones, one of the underperforming subsectors in the previous quarter, took off with accelerated demand for U.S. unmanned aircrafts from the battlefield.  Within the first three days of the conflict, this subsector gained 14.1%.  In mid-March, the U.S. government announced USD 800 million in military support to Ukraine, including 100 Switchblade drones, further fueling the subsector’s performance.  AeroVironment, the manufacturer of Switchblade Drones, and airborne electronic systems providers such as Elbit Systems and Rada Electronic Industries were the other leading contributors to this outperformance.

Clean Energy (7.9%): The Russia-Ukraine war magnified the risk of the world’s dependence on fossil fuels, potentially speeding up the transition to alternative energy sources such as solar and wind.  On March 8, 2022, U.S. President Biden signed an executive order to ban the import of Russian oil and gas, promptly followed by similar orders from European allies.  Clean energy stocks benefited from the rising prices of traditional energy sources—the price of WTI crude oil increased by USD 30.40 per barrel (or 40.2%) during the first quarter.  Companhia Paranaense de Energia (Copel), Centrais Elétricas Brasileiras and Enbridge also saw notable gains during this period.

Space (3.6%): Mixed news from various constituent stocks sent the Space subsector Q1 performance on a turbulent ride.  On one hand, company-specific events such as the failure of Astra’s rocket launch and doubt regarding Virgin Galatic’s profitability over its new ticket sale of space tours dragged the space subsector down.  On the other hand, the Russia-Ukraine war helped to proliferate the role of satellites and airbornes in modern national defense.  Maxar Technologies, which provides high-resolution satellite images over a battlefield, was the largest contributor and the top performer within the Space subsector.

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S&P Latin America Equity Indices Quantitative Analysis Q1 2022

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Michael Orzano

Senior Director, Global Equity Indices

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Silvia Kitchener

Director, Global Equity Indices, Latin America

S&P Latin America Equity Indices Commentary: Q1 2022

The Latin American pendulum has swung back from negative to positive returns in the past three months. The S&P Latin America 40 ended the quarter up 29.5%, its best Q1 performance since 1991. This is in stark contrast to other global equity markets, which ended in the red, with the S&P 500® losing 4.6%, the S&P Europe 350® down 7.3% and the S&P Emerging BMI down 6.5%.

Two years into the COVID-19 pandemic, most of the world seems to be turning the corner, despite different variants continuing to appear. However, the uncertainty of the ups and downs of the virus is still leaving many countries in a scrambled state. Added to this, the Russia-Ukraine conflict has caused major geopolitical and macroeconomic shocks—most notably by triggering a sharp rise in commodity prices, which has broadly supported the Latin American region's markets and economic activity. However, these benefits may ultimately be offset by some
economic and political risks, such as rising inflation, ongoing supply chain disruptions and newly elected governments coming into play.

Despite the existing political, economic and social environment, the markets greatly rebounded in Q1. So much so that on March 31, 2022, the flagship indices for Mexico and Peru both reached their all-time highs. The S&P/BMV IRT, which was launched on Oct. 30, 1978, with a base value of 0.7816, ended March 2022 at a record high of 83,810.9. The S&P/BVL Peru General Index, which was launched on Jan. 31, 1992, at a base level of 108.55, closed March at an all-time high level of 24,915.50. All the other Latin American markets' main indices also ended with positive returns. Latin American country headline indices had strong returns, which contrasted with the negative returns across other major global regions.

Which sectors were the biggest contributors to the regional performance? Based on the S&P Latin America BMI sectors, only Information Technology did poorly, losing 5.2% in Q1; all others had strong positive returns. Financials (35.0%) and Materials (32.5%) were the largest sectors by weight in the S&P Latin America BMI, and in Q1, they made the largest contribution to the total return of the broad regional index.

If we dig a little deeper, we can see that Latin American equity market gains were widespread. The S&P Latin America BMI gained 25.3% in Q1, with the index's top 10 constituents representing approximately 13.3% of the total return. Brazil's Vale S.A. (up 42.6% in Q1) was the largest contributor to returns, followed by Chile’s SQM (up 69.7% in Q1). Brazilian financial companies like B3 S.A. (up 65.2% in Q1), Itau Unibanco (up 52.3% in Q1) and Itausa (up 41.0% in Q1) also had a big hand in the pendulum's swing.

Despite geopolitical turmoil and market volatility throughout the world, Latin American equities had a great start to the year. The prospects of the region will be dependent on the development of the Russia-Ukraine conflict and on the economic and social policies each government implements throughout the year.

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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.


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