Summer 2021 Quarterly Newsletter
Author: Patrick Bobbins, CFA®CIMA®
We are now halfway through 2021 and equity markets continue to bump up against all-time highs. The S&P 500 is up 15% for the year, still being led by large value companies (+17%) compared to large growth (+13%). Bonds remain a laggard year to date (-1.6%) as interest rates moved higher from the beginning of the year. Developed international equities (+9.2%) and emerging market equities (+7.6%) both trail the U.S. equity markets.
We’ve mentioned inflation in several of the past newsletters and will discuss it again here. We are closely monitoring the wage inflation metrics in the coming months as elevated unemployment benefits start to subside. We have witnessed labor shortages in many of the high touch service industries, restaurants, industrial plants and other lower-income areas of the job market. We have also seen record job opening numbers. It will be interesting to see if employees return to work after the additional unemployment benefits roll away. It is yet to be seen if this is truly a transitory inflationary environment or if this is the start of something more substantial. We are watching closely.
Our initial outlook for the second half of the year remains intact. Equity valuations remain elevated. However, corporate earnings growth is very robust. We still prefer to have a slight overweight to value-oriented equities, infrastructure, real assets and commodities for the remainder of the year. These assets should all benefit if inflation pressures prove to be non-transitory.
After the great run higher in the equity markets both in 2020 and again this year, it may be a good time to revisit the overall equity risk in your portfolio. As always, if you have any questions or would like to discuss the amount of risk in your portfolio in more detail, please reach out to your advisor. We would be happy to hear from you this summer!
This article was featured in our Summer 2021 Quarterly Newsletter available here:Quarterly Newsletter