DECEMBER WAS a month to remember for the stock market. The S&P 500 returned 4.5%, while small caps were up a slightly weaker 3.4%. Foreign stocks rallied 3.7%, but emerging markets continued to lag, eking out a 1.5% return.
It was a stellar year for the bulls. The U.S. stock market posted a 25.7% return, as measured by Vanguard Total Stock Market ETF (symbol: VTI). Vanguard Small-Cap ETF (VB) started the year hot, handily beating large-company stocks, but lost its momentum by the second quarter. It was up 17.7% in 2021.
Foreign shares were the most notable laggards. Vanguard FTSE All-World ex-U.S. ETF (VEU) was up just 8.2% last year, while Vanguard FTSE Emerging Markets ETF (VWO) barely finished in positive territory—up 1%. Foreign small-company stocks were a relative bright spot, with Vanguard FTSE All-World ex-U.S. Small-Cap ETF (VSS) up 12.8%.
Commodities and energy stocks finally had their day in the sun. After oil prices dipped into negative territory in April 2020, the sector’s beaten-down stocks came roaring back. Energy was 2021’s best performing sector, with a more than 50% advance.
Remember how bullish investors were about clean-energy companies a year ago? As is so often the case, when almost everyone is excited about the prospects of a particular niche, it might be time to look elsewhere. Last year saw a massive 66.9% rally in the SPDR S&P Oil & Gas Exploration and Production ETF (XOP), while the iShares Global Clean Energy ETF (ICLN) lost 23.8%. Traditional energy companies trounced renewable energy stocks. The lesson we learned once again: Each year in the market is unique—and trying to predict returns is a fool’s errand.