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Quarterly Investment Commentary – July, 2021

September 23, 2021 By Harvest Asset Group

The U.S. investment markets continued to defy gravity in the second quarter of the year, closing out the month of June—and the first half of 2021—at new record highs.  This is the fifth consecutive quarter where the U.S. markets posted gains.

Economic conditions provided a perfect backdrop for stocks during the 2nd quarter of 2021.  Key factors include above average economic growth, higher inflation than seen in the past decade, expanded Federal spending as a proportion of GDP, and monetary policies aimed at suppressing interest rates.

With five consecutive quarters of gains, and all time highs becoming a routine part of the news cycle, it’s easy to forget that volatility and a certain amount of risk are always there, even if the risks are sometimes temporarily hidden from view.

Market history supports our hypothesis that market will move – either up or down, suddenly, and perhaps very significantly, in the short run (day to day, month to month, year to year for about five years), but up steadily at a satisfactory rate of return over the long run. 

Short term, dramatic swings in markets can be expected.  But that risk can be managed prudently by employing a disciplined investment management process, and integrating your investments with your financial planning.

Today’s Economic Perspective 

The relative success of vaccination efforts in the U.S. has resulted in a significantly stronger economy this year. Meanwhile, large countries like Brazil and India continue to struggle to contain the virus, but are showing signs of recovery despite the challenges.

The delta variant of the virus continues to challenge economic progress across the globe, but all countries are expected to register solid increases in second-quarter GDP.  It is expected that other advanced economies should post strong results in the second half of the year and into 2022.

It has been full steam ahead for both the global economy and the rally in risk assets (equities, commodities, high yield bonds, real estate, and currencies).  The overall U.S. economy grew by a 6.4% annualized rate during the first quarter.

The amount of money Americans have in checking, savings, and money market accounts has surged.  There is a tremendous amount of excess saving and pent-up demand in North America and Europe.  Businesses are in a spending mood as well, desperately seeking materials and workers.

Inflation is an economic factor to watch.  The Fed describes recent spikes in inflation as “transitory”, but it remains to be seen whether the trend will continue enough to raise concerns.  As consumers, we are feeling the impact of inflation currently in cars, building supplies, and housing.  

The global recovery and expansion have a long way to go, especially since many countries are still imposing lockdown measures to varying degrees.

Today’s Market Perspective

Virtually every asset class in a diversified portfolio produced gains in the second quarter.  The Wilshire 5000 Total Market Index—the broadest measure of U.S. stocks—gained 6.49% in the second quarter, up 15.36% since January 1.  The comparable Russell 3000 index is up 15.11% for the first half of the year.  

Equity markets tend to be forward looking, and have long anticipated the economic improvement that is unfolding today. The big question is how much opportunity for appreciation is left, even if the global economy forges ahead in 2022.

The rally in stocks has been broadening to include more companies and sectors than had been driving markets over the last several years.  Other asset classes, such as emerging markets, are showing strength recently and at much more favorable valuations.

Given the strong outperformance of stocks since March 2009 and elevated stock market valuations relative to much of the world, we could see some volatility and lackluster performance in U.S. equities in the months ahead.  Corrections of 5% to 10% can occur without any fundamental reason.

Final Thoughts

Enjoy the gain we’ve experienced so far in the year without trying to project them into an unknown future.  As an investor, it pays to stay focused on long term appreciation, which is driven by the day to day process of companies employing their creative resources and ingenuity to produce revenue, growth and profits.

Experience, education, and judgment matter when it comes to navigating key investment and financial decisions.  Remember that the so-called experts in the financial media industry are entertainers.

Single-day returns are largely insignificant, and your portfolio is tailored to you and your life goals. Stay disciplined and stay the course. And if you ever feel doubt creeping in, give us a call.  We are always here to help.

Harvest Asset Group, LLC

Filed Under: Current Perspectives

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