2nd Quarter Market Commentary
By Steve Conard, CFP®
Financial markets posted solid returns across asset classes in the 2nd quarter of 2021 amid much calmer waters in the US Treasury Bond market. As higher bond prices drove the 10-year US Treasury yield down from 1.75% to 1.44%, trading in the domestic equity market resumed the familiar pattern that has dominated most of the past five years – leadership by large growth company shares, mainly in the technology sector. Once again, the apparent rotation into so-called ‘value’ stocks proved to be fleeting as the S&P 500 growth index trounced its value index peers by a margin of 11.84% to 4.86% in quarter two. Further, after two quarters of strong outperformance, small company stocks lagged large caps as the S&P 500 doubled the Russell 2000 index return in the latest quarter.
Solid global equity market returns are the only thing the first two quarters of the year have in common. Overall volatility and market leadership shifted abruptly as first quarter earnings season confirmed the strength of the reopening US economy. Even as inflation became the topic du jour in the financial media, bond markets posted gains with the Bloomberg Barclays US Aggregate Bond Index rising 1.91% in the 2nd quarter. So far bond traders are buying into the Fed’s characterization of rising prices as a “transitory” phenomenon that will normalize in a post-COVID world. Stock traders are usually pleased when bond yields decline, and last quarter was no exception as the following quarterly index performance illustrates: S&P 500 (+ 8.17%); Dow Jones Industrial Average (+ 4.61%); Nasdaq Composite (+ 9.49%). Overseas markets participated as well with the MSCI EAFE developed markets (+ 4.37%) and MSCI Emerging Markets (+ 4.42%) indexes posting solid gains.
With all the major US stock indexes up double digits through the first half of the year, it would be reasonable to temper expectations going forward. It’s possible that corporate profits may have to catch up to stock prices, and bond traders are certainly watching inflation and the Fed very closely. Other wild cards with potential to upset the cart are White House tax hike proposals that would retroactively reach into investors’ pockets to fund runaway federal spending, and a new COVID variant amid slowing vaccination rates.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.