How Every Asset Class, Currency, and S&P 500 Sector Performed in 2021
How Every Market Performed in 2021
After the roller coaster of volatility in 2020, the majority of asset classes in 2021 saw positive returns as the world reopened for business.
The Federal Reserve’s accommodative monetary policy, supply chain struggles, and high demand for fuels and raw materials for the clean energy transition largely shaped the markets.
Alongside the rise in inflation, commodities and cryptocurrency outperformed as broad equity indices saw double-digit returns, with the S&P 500 rising by 26.9% in 2021.
Markets Roundup for 2021
Speculation and the energy fuels for the world’s reopening were two of the main themes for markets in 2021, reflected in Bitcoin (59.8%) and crude oil (56.4%) being the top two performing assets in that time frame.
The S&P GSCI commodity index (37.1%) was another top performer, as agricultural and livestock food prices rose alongside the Dow Jones Real Estate Index (35.1%).
|Asset Class||2021 Return||Asset Type|
|WTI Crude Oil||56.4%||Commodity|
|Dow Jones Real Estate Index||35.1%||Real Estate|
|Bloomberg Barclays Corporate Bonds Index||-1.2%||Bonds|
|Bloomberg U.S. Treasury Index||-2.5%||Bonds|
|MSCI Emerging Markets||-5.5%||Equities|
Despite most physical and digital commodities seeing price gains, precious metals such as gold (-3.6%) and silver (-11.7%) struggled to hold onto their value, while industrial and battery metals like lithium (477.4%) and cobalt (207.7%) surged.
Large cap equity indices like the S&P 500 (26.9%) almost doubled the returns of small caps (Russell 2000, 13.7%), with emerging markets failing to keep up as they fell 5.5%.
How the S&P 500 Sectors Performed
After last year’s poor performance as the worst-performing S&P 500 sector, energy (47.7%) was 2021’s best performing sector alongside the rise in crude oil and other energy commodities.
Two other negative performers last year, real estate (42.5%) and financials (32.6%), also turned it around and were among the top performing sectors this year.
Despite many value equities performing well, growth equities still managed to keep a strong pace. Information technology (33.4%) continued to provide strong returns with Microsoft (51.2%) outperforming many of the other tech giants.
As Amazon (2.38%) and Netflix lagged behind (11.4%), Apple (33.8%) capped off its strong 2021 returns by becoming the first U.S. company to reach a $3T market cap at the start of 2022.
Foreign Exchange and Currency Returns in 2021
While the U.S. dollar struggled last year with most currencies outperforming it, 2021 saw the dollar index rise by 6.4%, outperforming most other currencies.
The Chinese yuan (2.7%) and Canadian dollar (0.7%) were the only major currencies that managed positive returns against the U.S. dollar, while the Australian dollar (-5.7%), Euro (-7.0%), and Japanese Yen (-10.2%) were among the worst performers.
The Turkish lira was the standout loser in foreign exchange, and the turmoil was punctuated by turnover in the country’s finance minister position. While most other emerging economies raised interest rates to fight against inflation, Turkey has continued cutting rates and looks set to default on its $446 million of external debt.
The Winners and Losers of 2021
As the COVID-19 pandemic defined many of the winners and losers in 2020, the gradual reopening of international travel and business shaped the over and underperformers of 2021.
Cryptocurrencies had a standout year beyond Bitcoin (59.8%), which was greatly outpaced by many other cryptocurrencies and smart contract platforms like Ethereum (398.3%), Solana (11,177.8%), Avalanche (3,334.8%), and Luna (12,967.3%).
While Tesla (49.8%) had another strong year, Lucid and Ford Motors greatly outperformed Elon Musk’s company and the rest of the auto industry with their EV efforts. Demand was so great that Ford had to halt reservations for its F-150 Lightning pickup trucks at the end of 2021.
The pain of Evergrande Group (89.3%) shareholders is set to end soon, with the company starting 2022 by halting shares in Hong Kong as its $300 billion in liabilities remain in limbo.
Peloton (-76.4%) was another big loser in 2021 as it gave back nearly all of its gains from last year, proving lockdown speculation fueled most of its former valuation. Just Eat (-52.9%) was similarly hit hard as restaurants reopened in 2021.
Robinhood’s (53.3%) weak performance since its IPO puts a bow on 2021’s retail “stonk” frenzy kicked off by the Wall Street Bets subreddit.
With 2021 being a breakout year for retail traders and investors online, we’ll see if 2022 remains risk-on as the Fed begins tapering, or if markets are due for a change in direction.
Which Countries Hold the Most U.S. Debt?
Foreign investors hold $7.3 trillion of the national U.S. debt. These holdings declined 6% in 2022 amid a strong U.S. dollar and rising rates.
Which Countries Hold the Most U.S. Debt in 2022?
Today, America owes foreign investors of its national debt $7.3 trillion.
These are in the form of Treasury securities, some of the most liquid assets worldwide. Central banks use them for foreign exchange reserves and private investors flock to them during flights to safety thanks to their perceived low default risk.
Beyond these reasons, foreign investors may buy Treasuries as a store of value. They are often used as collateral during certain international trade transactions, or countries can use them to help manage exchange rate policy. For example, countries may buy Treasuries to protect their currency’s exchange rate from speculation.
In the above graphic, we show the foreign holders of the U.S. national debt using data from the U.S. Department of the Treasury.
Top Foreign Holders of U.S. Debt
With $1.1 trillion in Treasury holdings, Japan is the largest foreign holder of U.S. debt.
Japan surpassed China as the top holder in 2019 as China shed over $250 billion, or 30% of its holdings in four years.
This bond offloading by China is the one way the country can manage the yuan’s exchange rate. This is because if it sells dollars, it can buy the yuan when the currency falls. At the same time, China doesn’t solely use the dollar to manage its currency—it now uses a basket of currencies.
Here are the countries that hold the most U.S. debt:
|Rank||Country||U.S. Treasury Holdings||Share of Total|
|3||🇬🇧 United Kingdom||$655B||8.9%|
|6||🇰🇾 Cayman Islands||$284B||3.9%|
|11||🇭🇰 Hong Kong||$221B||3.0%|
|16||🇸🇦 Saudi Arabia||$120B||1.6%|
|17||🇰🇷 South Korea||$103B||1.4%|
As the above table shows, the United Kingdom is the third highest holder, at over $655 billion in Treasuries. Across Europe, 13 countries are notable holders of these securities, the highest in any region, followed by Asia-Pacific at 11 different holders.
A handful of small nations own a surprising amount of U.S. debt. With a population of 70,000, the Cayman Islands own a towering amount of Treasury bonds to the tune of $284 billion. There are more hedge funds domiciled in the Cayman Islands per capita than any other nation worldwide.
In fact, the four smallest nations in the visualization above—Cayman Islands, Bermuda, Bahamas, and Luxembourg—have a combined population of just 1.2 million people, but own a staggering $741 billion in Treasuries.
Interest Rates and Treasury Market Dynamics
Over 2022, foreign demand for Treasuries sank 6% as higher interest rates and a strong U.S. dollar made owning these bonds less profitable.
This is because rising interest rates on U.S. debt makes the present value of their future income payments lower. Meanwhile, their prices also fall.
As the chart below shows, this drop in demand is a sharp reversal from 2018-2020, when demand jumped as interest rates hovered at historic lows. A similar trend took place in the decade after the 2008-09 financial crisis when U.S. debt holdings effectively tripled from $2 to $6 trillion.
Driving this trend was China’s rapid purchase of Treasuries, which ballooned from $100 billion in 2002 to a peak of $1.3 trillion in 2013. As the country’s exports and output expanded, it sold yuan and bought dollars to help alleviate exchange rate pressure on its currency.
Fast-forward to today, and global interest-rate uncertainty—which in turn can impact national currency valuations and therefore demand for Treasuries—continues to be a factor impacting the future direction of foreign U.S. debt holdings.
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