January 11, 2022

Q4 2021 market update: Do uncertain times remain?

By Sun Life Staff

Major equity markets around the globe continued making gains in the fourth quarter of 2021. Read on for our view of the global economy and financial markets in the fourth quarter.

Highlights for the fourth quarter1 of 2021

  • Central banks respond to higher inflation
    • Interest rates may rise through 2022 and beyond.
    • Many central banks held their policy rates but said increases may happen earlier than expected.
    • Many central banks reduced or halted their bond purchasing programs.
  • New virus variant raises questions about the path of COVID-19
    • A worldwide push continues for vaccinations and booster shots to help stem the pandemic’s impact.
    • The spread of the Omicron variant happened quickly.
    • Many countries renewed travel restrictions.
  • The price of oil finished largely unchanged over the quarter
    • Concern about a slowing economic recovery put pressure on oil prices.
    • The U.S. released some of its strategic oil reserves.

Higher inflation reflects economic growth

Efforts to reopen the economy continued over the quarter. Virus variants slowed reopening. But greater economic activity boosted inflation around the world. 

Gross domestic product (GDP)* rose in the U.S. and China but at a slower pace than the previous quarter. Japan’s GDP was weaker and shrunk. 

*(GDP is a common measure of economic strength.)

Central banks believe inflation will continue to rise in 2022. Many held their policy interest rates steady but signalled that rates may rise given higher inflation. The Bank of England raised its policy rate by 15 basis points to help contain inflation. The U.S. Federal Reserve Board said it would reduce its bond purchases as the U.S. economy needs less help.

Many countries renewed travel restrictions to help control the spread of the Omicron variant. This may hurt certain industries. It could benefit the global economy if the virus is contained.

Financial markets were strong in the fourth quarter 

Many equity markets made gains over the fourth quarter as economic growth pushed ahead. Investors favoured equities amid better economic conditions. The three largest U.S. equity indexes reached record-high levels. China and the U.K. were also strong. Markets that declined included Japan and the emerging markets.

Higher inflation and supply chain challenges that have limited movement of goods worldwide led to increased market volatility. They also have the potential to create market uncertainty moving ahead. The likelihood of higher interest rates to manage inflation also weighed on the minds of investors.

Major oil producers agreed to keep production increases for the rest of 2021. This agreement put pressure on oil prices. The U.S. government was among the major oil consumers that released strategic oil reserves into the market to contain rising prices.

The price of gold was somewhat volatile but finished the quarter higher.

Are Canadian markets strong?

Economic conditions improved in Canada and equity markets rose in response. 

  • The S&P/TSX Composite Index posted a new record high.* 
    • The best-performing sectors included materials and real estate. 
  • The latest GDP figures showed that Canada’s economy grew amid higher consumer spending and exports. 
    • The inflation rate in Canada rose to 4.7% during the quarter. This was the highest year-over-year inflation growth since 2003. 
    • Rising costs for food and shelter were among the leading contributors to inflation growth. 
    • A rise in gasoline prices also led to higher inflation.
  • Canada’s inflation target sits at 2% with a “control range” of 1% to 3%. 
    • The Bank of Canada (BoC) has monetary policy flexibility within this control range. This will help sustain and maximize Canada’s level of employment. 
  • The BoC held its benchmark interest rate steady at 0.25% and ended its bond purchase program. 
    • The BoC expects to raise interest rates in mid-2022 if a strong labour market and high inflation continue.
  • Canadian bond prices finished higher.* 
    • Bond yields moved higher. The rise in yields reflected improving economic conditions and the market’s expectation of higher interest rates. 
    • Yields may decline and bond prices may increase. This will be based on whether virus variants have a significant risk on the economy.

*Source: Bloomberg, December 2021. 

What can investors expect in the future?

Here are some highlights of the major factors influencing the world and Canada’s economy:



Pandemic and vaccinations

Much of the outlook for the global economy depends on how successful countries are in their mass vaccination efforts. Markets will watch closely to see how the pandemic unfolds and how it may influence the global economic recovery.


Domestic and travel restrictions

Domestic restrictions could hinder demand and new travel restrictions could hamper global trade activity. Governments and central banks appear committed to providing the help needed to keep up the economic recovery.


Oil prices

The price of oil may be volatile in response to uncertainty over the potential impact of virus variants. The International Energy Administration believes that oil production may increase through 2022 if higher demand persists.


Canadian economy

The Canadian economy could continue to gain momentum in the first quarter of 2022 if consumer activity remains strong. The unknowns related to COVID-19 have the potential to slow down economic activity.


Real estate and housing prices

Widespread demand for real estate may continue into 2022 and lift housing prices further. Rising interest rates would likely help stall the growth in real estate activity and ease price pressures.


1A quarter refers to a three-month period:

  • The first quarter (Q1) covers the months of January to March.
  • The second quarter (Q2) covers April to June. 
  • The third quarter (Q3) covers July to September. 
  • The fourth quarter (Q4) covers October to December.

This commentary contains information in summary form for your convenience. Although this commentary has been prepared from sources believed to be reliable, Sun Life can’t guarantee its accuracy or completeness. Plus, this commentary is intended to provide general information and should not be seen as providing specific individual financial, investment, tax, or legal advice. The views expressed are those of the author and not necessarily the opinions of Sun Life. Please note, any future or forward-looking statements contained in this commentary are speculative in nature and cannot be relied upon. There is no guarantee that these events will occur or in the manner speculated.

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