TrustWell’s Quarterly Market Review: Q3 2021

By Brett Freese

 Market Highlights:

• Stocks had a flat to slightly negative 3nd quarter. Interesting notes:  US Large Cap stocks continue to outperformed US Small Cap.  However, World Small & World Mid Cap outperformed International Developed Markets slightly this past quarter but both were negative.
• Corporate Bonds, Municipal Bonds, and World Bonds indices were mixed as well (see Market Scorecard) in light of rising inflation and continued growth concerns. Short-Term Government Treasuries and World Bond categories were down slightly for the quarter.
• Gold was down 0.70% price per ounce for the last 90 days.

Economic Notes:

• According to the financial markets the world is in a pause and reflection mode at the end of September.
• China is going through major growing pains as it struggles to manage a dictator-imposed communism vs. the prosperity of a capitalistic middle and upper class.
• Supply chain issues like the long line of container ships waiting to dock and chip shortages continue to be a concern for growth.
• While value investing led in the first quarter and growth led the second quarter, they produced similar returns in Q3. 
• Unemployment numbers continue to improve. In fact, getting enough workers continues to be a struggle in many industries this past quarter.
• The Federal Reserve kept the Federal Funds rate target range to a historic low of 0.00 – 0.25% and have stated that they are willing to tolerate above target inflation for longer to make sure the economy improves. Note: The Federal Reserve has a dual mandate to achieve both stable prices and maximum sustainable employment.  Clearly leaning towards the latter at this point in time.
• Inflation continues to heat up as the debate over whether this a short-term concern or a long-term issue continues. This will important to watch.
• The unprecedented spending in Washington will have long lasting effects on the borrowing cost of the US Government.
• As the financial markets anticipate economic trade to recover, we will likely face a steepening yield curve increasing the challenges to fixed income investing and a need to be more strategic in choosing wisely where in the equity markets to invest. In light of rising inflation and interest rates, a careful investment strategy is warranted.

Historical Stock Market Declines:

Market declines and inclines rarely look the same or even feel the same, but they do happen and the ups and downs are a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.

A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years

Remember that when stock prices go down the “market collapse gurus” receive the most air time. Likewise, when stock prices go up all the “bull market gurus” talk about how the market will continue to be up BIG. Please know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.

Market Scorecard for the last 13 weeks ending 09/30/2021:

US Equities:

+0.58%                  S&P 500 (Index of the largest US publicly traded companies)

 -4.36%                  Russell 2000 (Index of 2000 Small-cap US publicly traded companies)

Global Equities:

 -2.35%                  Foreign Large – Morningstar Category

 -1.43%                  World Small/Mid Stock – Morningstar Category

US Bonds:

+0.27%                  Corporate Bond – Morningstar Category

 -0.09%                  Short Government – Morningstar Category

 -0.24%                  Muni National Bond Index – Morningstar Category

Other:

 -1.22%                  World Bond – Morningstar Category

 -0.70%                  LBMA Gold Price

Market Indicators:

Inflation:
5.37% as of 08/20/21  (Up 1.21% from 4.16% in May 2021)

Unemployment: 
5.2% as of 09/03/21  (Down from 5.80% in May 2021)

Fed Funds Target Rate:
0.00 – 0.25% as of 09/28/21  (Same as 06/28/21 of 0.00 – 0.25%)

Suggested Next Steps:

• Understand that market cycles are normal. The markets go up and down in mostly unpredictable directions and amounts. The ups and downs of investments many times seem to make sense only after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
• Your investments are just one factor in the success of your life, money, and purpose. Make sure that you are confident in your full financial plan, so you can successfully have an amazing ROL (Return on Life).
• Your investment allocation and diversification are important factors in both risk management and future returns. Therefore, if you have questions about your investment plan, please schedule a phone or in-person meeting with your TrustWell Financial Advisor(s).