Deep Analytic Market Insights for 2021

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The U.S. stock market had a good year in 2021. What insights can we glean beyond the impressive 28% return? How did it compare it to global equities? I will show you some of the winners and losers, and finish with a few observations on the VIX.

U.S. stock market

Figure 1 shows how the market deviated from its normal state in 2021 using the efficient frontier visualization. The dimmed line at the bottom is the “normal” efficient frontier formed by a set of models based on their capital market assumptions or long-term averages, while the top line is the actual efficient frontier with the risk and return of each model in 2021.

Figure 1. The actual efficient frontier for 2021 (top line) as compared to the normal efficient frontier based on the capital market assumptions (bottom line).

Across the board, the return was much higher than normal and volatility much lower. Advisors can show this to their clients to set the expectation that the same return is not likely next year.

Below is the list of the model portfolios and their capital market assumptions. The long-term volatility for SPY is around 19.