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U.S. Equities Market Attributes January 2022

U.S. Equities Market Attributes December 2021

ETF Transactions by U.S. Insurers in Q3 2021

Combining ESG and Islamic Finance Principles in an Index Framework

U.S. Equities Market Attributes November 2021

U.S. Equities Market Attributes January 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

KEY HIGHLIGHTS

U.S. Equities Market Attributes January 2022: Exhibit 1

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). 

U.S. Equities Market Attributes December 2021

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

KEY HIGHLIGHTS

U.S. Equities Market Attributes December 2021: Exhibit 1

MARKET SNAPSHOT

As for the year that was—it was, posting a broad 26.89% gain (28.71% with dividends), and 434 issues gained for the year, as 96 gained over 50% and 7 declined at least 25%.  All 11 sectors posted double-digit gains (7 gained last year, with 5 in the double digits).  COVID-19 continued to dominate the news, as the vaccines (and now the boosters) permitted Americans to spend more outside.  But it was spending inside, especially via e-commerce, that permitted record earnings, sales, and margins for the S&P 500, as consumer wealth shot up (via equities and home ownership, as well as lower spending), and confinement seemed to boost spending.

Also supporting the economy was a friendly Fed, which kept rates near zero.  While bond buying support is expected to end in March 2022, and rates are likely to rise (first increase potentially in June 2022), even with three increases (of 0.25% each), rates would remain low and therefore supportive.  Inflation, however, may be a different issue.  While the supply shortage is expected to ease, labor shortages (or “displacements”—the new term that has emerged) may be harder to resolve.  Telecommuting has also added to the labor change, as it started growing pre-COVID-19 and is now in full swing, with most offices still more empty than full.  Still, optimism prevails, as money flowed into the market (which helps to keep nervous money managers in), and the S&P 500 posted new closing highs (70 for the S&P 500 in 2021, ranking second only to 1995’s 77), as the “don’t fight the Fed” saying changed to “don’t fight the flow” (for a while it was “don’t fight the FT—the Fed and the Treasury).

ETF Transactions by U.S. Insurers in Q3 2021

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Raghu Ramachandran

Head of Insurance Asset Channel

S&P Dow Jones Indices

INTRODUCTION

Over the first three quarters of 2021, U.S. insurance companies traded almost USD 48 billion in ETFs.  The amount traded increased in each quarter.  After a sluggish second quarter, insurance companies resumed buying Fixed Income ETFs in the third quarter.  However, they continued to exit Equity ETFs.  Over the three quarters, insurance companies added USD 2.6 billion into ETFs.  In this report, we analyze these trades and explore the differences of insurance ETF usage over the first three quarters of 2021.

ETF TRADES

In the third quarter, insurance companies traded USD 16.5 billion in ETFs; this was 56% larger than the USD 10.6 billion they traded in the third quarter of 2020. However, trading was 3% lower YTD than in 2020, mostly because of the unusually large volume of trading in the first quarter of 2020.

As seen before, trading volume was not uniform throughout the Q3 2021 period. Trading by insurance companies was fairly subdued in the beginning of the third quarter but picked up toward the end (see Exhibit 1).

ETF Transactions by U.S. Insurers in Q3 2021: Exhibit 1

While overall trading was split evenly between Fixed Income and Equity, companies exhibited significantly different behaviors in each quarter. They traded evenly in the first quarter, more Fixed Income in the second, and more Equity in the third (see Exhibit 2).

ETF Transactions by U.S. Insurers in Q3 2021: Exhibit 2

Combining ESG and Islamic Finance Principles in an Index Framework

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Michael Orzano

Senior Director, Global Equity Indices

S&P Dow Jones Indices

Islamic finance and environmental, social, and governance (ESG) investing are complementary in many ways and hold a number of shared principles. Though broader in nature, ESG strategies often exclude companies involved in such businesses as alcohol, tobacco and gambling that are considered Haram in the Muslim world. However, there are also fundamental Shariah compliance exclusions, such as conventional financial services and pork, that are not considered problematic in general ESG strategies.

This article will explore the similarities and differences of broad-based ESG and Islamic indexing through a real-world example of an innovative index that combines both frameworks — the S&P Global 1200 ESG Shariah Index. This index also allows us to examine the impact of applying ESG and Shariah screens on the general investment characteristics of the S&P Global 1200 — a conventional global equity benchmark.

Combining ESG and Islamic Finance Principles in an Index Framework: Figure 1

Understanding ESG and Shariah screening criteria

Because Islamic and ESG investors seek to avoid companies involved in certain activities, it is necessary to apply various quantitative screens to identify and exclude companies violating specific ESG or Shariah compliance criteria. While these involve a number of overlapping themes, there are also some distinct areas that only fall in the Islamic or ESG space. Figure 1 provides a general overview of typical screens relevant for ESG and Islamic indices.

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U.S. Equities Market Attributes November 2021

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

KEY HIGHLIGHTS

U.S. Equities Market Attributes November 2021: Exhibit 1

MARKET SNAPSHOT

Another COVID-19 variant emerged, as was expected, and the World Health Organization named it Omicron.  It will take at least another week to determine any of the infection or health hazards of Omicron, but the initial data on the variant has it containing approximately 50 mutations, with 30 spike proteins (which allow it to attach to human cells).  Even before Omicron emerged, infections were on the rise (especially in Europe), as were restrictions, and many countries have now added travel restrictions to slow the potential spread of Omicron.  As for the market’s reaction, it was strong, but not significant.  In the U.S., the S&P 500 declined 2.27% when the news was released during Black Friday’s shortened holiday session (Nov. 26, 2021), the third worst day of the year (646th worst since 1928), which left the S&P 500 2.34% off its Nov. 18, 2021, closing high (its 66th of the year, second only to 1995’s 77).  While the impact of the variant was not known, the Street took an optimistic view (buy on the dip), not seeing (or wanting to see) a return to lockdowns, as it recouped 1.32% the next day.  Then on the following day, Tuesday (Nov. 30, 2021) came Powell’s disallowance of elevated inflation as transitory, as tapering was seen as happening more quickly (with the first rate hike earlier than expected; no more debate on one or two increases in 2022).  As a result, the S&P 500 declined 1.90% for the day, turning the month negative at -0.83%, but only 2.92% away from a new closing high and up 21.59% YTD (after 16.26% in 2020)

As for the part of the month not as affected by Omicron COVID-19 news (the first 18 of the 21 trading days), the S&P 500 posted seven new closing highs, and both earnings and sales (as well as buybacks and dividends) appeared to set a quarterly record.  Consumers continued to be the backbone, as pre-holiday shopping increased, spurred on by supply concerns.  Initial estimates for the start of the actual holiday season (Black Friday) showed an estimated 48% increase over the depressed 2020 period as customers returned to the stores, but it was still 28% shy of the 2019 level, as Americans spent an estimated USD 8.9 billion (margins are expected to be much higher).  As for my indicator, my wife and daughter ventured out for their 17th Black Friday expedition (this year starting in SoHo, then making their way up to Midtown), as they reported banners were large, but sales were few, and some limited inventories had them texting me to make a run to Hudson Yards for a jacket (it’s not my area, but that shopping center was not crowded at all, and the jacket had a minor 10% discount; there were only two in stock).  Cyber Monday added (disappointingly) to the spree, but U.S. shoppers have been on cyber for most of the pandemic.

At this point, COVID-19 does not appear to be the biggest long-term Street fear, although it could have the largest impact if the new (or next) variant turns out to be worse than expected.  The honor of biggest Street fear goes to inflation, which continues to be fed by supply shortages, labor costs, worker shortages, and consumers, who have not pulled back (high demand).  The shorter-term fear, however, is the budget, which is due Dec. 3, 2021 (which some feel will be given another band-aid), and the debt (which should meet its limit in the first half of December), as many on the Street still look for a Santa Claus rally.  Given the inflows and optimism, far be it for me to say “bah humbug”—long live irrational exuberance (and may the trades be with you).

The S&P 500 closed at 4,567.00, down 0.83% (-0.69% with dividends) for November from last month’s 4,605.38, when it was up 6.91% (7.01%), and the prior month’s 4,307.54 close, when it was down 4.76% (-4.65%).  The three-month return was 0.98% (1.32%), the YTD return was 21.59% (23.18%), the one-year return was 26.10% (27.92%), and the index was up 34.87% (38.80%) from its pre-COVID-19 closing high on Feb. 19, 2020 (there have been 85 new closing highs since the pre-pandemic high).  The S&P 500 posted seven new closing highs in November (5 in October, 1 in September, 12 in August, 7 in July, 6 in June, 1 in May, 10 in April, and 5 in March, February, and January) and 66 YTD; it has posted new closing highs in every month since November 2020 (it missed October 2020 but had new closing highs in August and September 2020).  Since Biden won the Nov. 3, 2020, U.S. election, the S&P 500 has gained 35.55% (37.74%), with 64 closing highs since his inauguration (Jan. 20, 2021).  The bull market was up 104.12% (109.64%) from the low on March 23, 2020.  The index closed the month 2.92% off its Nov.18, 2021, closing high (4,704.54).

The S&P 500 started November where it ended October, with more new closing highs (the last two days of October posted new closing highs; Oct 29-30, 2021).  November opened with a perfect week—all five days had a new closing high (Nov. 1-5, 2021; making it seven trading days in a row).  The index went on to post another the following Monday (Nov. 8, 2021; making it eight trading days in a row—it was the fifth such occurrence since 1928).  The index then defended its gains but continued on, setting another new closing high on Nov. 18, 2021, making it 66 new closing highs YTD (second only to the record 77 in 1995).  The last three trading days of the month (after the Thanksgiving Day holiday) posted 1% moves, as reaction to the Omicron variant produced a knee-jerk decline of 2.27%, while the next day rebounded 1.32%, but then Chair Powell’s testimony of higher inflation and more tapering led into a decline of 1.57% for the end of the month.

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