Market Update: Q2 2021
2021 is rolling by and the second quarter came and went with a lot going on: vaccines, inflation concerns, jobs recovery, and more. Now that we can check another quarter off our list, let’s take a look at how markets performed and what we might look forward to in the months to come.
Despite considerable volatility, the broader U.S. market grew strongly in Q2 and blue-chip stocks delivered solid growth despite ongoing inflation and interest rate fears. The largest 500 companies in the U.S., as measured by the S&P 500, were up 8.17%. The tech-focused NASDAQ soared on the back of a sustained tech rally after pulling back mid-quarter, finishing up 9.49%. International stocks continue to lag behind the U.S. market, with China a drag on returns. International developed markets and emerging markets were both up 5.05%. Normally we see higher returns in emerging markets – the stalled vaccine rollout in many of these countries is what has kept them down recently.
Bonds… Treasury Bonds… sorry, I was having a James Bond moment there. Ahem, bond yields have climbed due to rising inflation expectations driven by positive global economic developments. U.S. bonds were up 1.83% and globally, bonds were just barely positive at 0.35%. The rocky bond road continues. We expect government bond yields to be volatile over the next few months but believe rates will remain fairly low – around current or modestly higher levels over the long-term. Ultimately if rates continue to rise, we expect this to occur in an orderly fashion. This view is supported by global central banks and backed by the Fed's aggressive bond-buying program that should help keep rates relatively contained.
A Look Ahead: What Can We Expect for the Rest of 2021?
A gaze into the crystal ball says that the U.S. economy looks to be on a clear path for growth as the pandemic recovery continues. The COVID-19 vaccine rollout has been uneven in certain regions of the world but remains a significant driver of improved risk sentiment in markets. We expect increased efficiency in vaccine distribution over the coming weeks; however, the implications of emerging variants still pose a moderate risk to markets.
Consumer sentiment is high, and continued growth with high volatility is likely. Volatility (defined as a stock price fluctuating way up and down frequently), while frightening to some, is looking great from where we sit, because it gives us more frequent opportunities to buy low and sell high.
Diving into other market indicators, like the labor market, show strength, however some sectors and regions are struggling to match workers with roles. More good news? Business outlook looks solid as demand picks way up, but (there’s always a catch, right?!) supply chain issues continue, especially in tech. Government policies could support further growth, though waning stimulus spending and debt concerns may cause some bumps in the road, so turn your four-wheel drive on folks.
Your Key Takeaways
Despite a lot of uncertainty around business reopening’s, vaccination rates, and economic growth, equities delivered a solid performance in the second quarter, closing out the strongest first half since 2019. Go team!
While the quarter closed strong, a number of dips, rallies, and ongoing volatility made it a rocky conclusion. We can expect more of this as the world continues to unevenly recover from the pandemic–such is life, right?
With all the uncertainty, it would not be surprising to see a market correction or pullback in the months ahead, but this does not equate to the Kiss of Death.
Overall, the economy seems positioned for strong growth in the second half of the year, though inflation worries, politics, and post-pandemic concerns may continue to weigh.
Bottom line, we’re keeping a close eye on market conditions, as continued uncertainty could drive sudden changes. But the good news, we’re poised to take advantage of any and all changes that come our way. And remember, don’t panic and don’t fear, just keep a mind’s eye. If you have any questions about this or any other investing topic, please don’t hesitate to get in touch. After all, that’s what we’re here for–confidence and peace of mind.
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