Please find our most recent market review below. Following the commentary, you will find a table of returns for widely available ETFs that represent the major markets. Below that are five simple portfolio mixes, composed of low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope this information is of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
Although hampered by the surging Delta variant, the economy and markets continued to grind forward in August.
The total U.S. stock market (VTI) advanced 2.86%, while developed international equities (VEA) rose 1.31%. Emerging-market stocks (VWO), meanwhile, gained 2.19%. The total U.S. bond market (BND) dipped by 0.19%, and municipal bonds (MUB) fell by 0.19%.
Stocks’ broad gains—the S&P 500 rose by 3% in August—is a good reminder that headlines about Covid, rising inflation, and other obstacles don’t by themselves dictate the market’s direction. In the end, markets typically rise and fall based on businesses’ earnings trends. With companies in the S&P 500 having reported strong second-quarter earnings and analysts expecting them to do so again in the third quarter, it’s clear why investors remain optimistic.
Still, there’s no doubt that the Delta variant has slowed the speed of the economic recovery and moderated stocks’ returns. The U.S. economy created just 235,000 new jobs in August, badly missing analysts’ expectations of 725,000 and falling steeply from July’s gain of more than 1 million payrolls. Service-sector jobs were the main culprit, as restaurants reversed the hiring spree they’d embarked on several months earlier. The August unemployment rate dipped to 5.2% from 5.4% in July. Real gross domestic product, which increased at an annual rate of 6.6% in the second quarter, is now expected by the Atlanta Fed to grow at an annualized 3.7% in the third quarter.
Meanwhile, yields on 10-year Treasury bonds reversed their decline in August, rising to 1.3% by month’s end from 1.24% at the end of July. Generally speaking, a climbing 10-year Treasury yield signals investor optimism about future economic growth. Time will tell whether rising yields prove to be a good omen.
Meanwhile, markets are keeping a close eye on the course of the Delta variant. There are signs that Covid case counts in the U.S. are easing. If that trend solidifies—and for now that remains a big “if”—it would augur well for Americans returning to work, stronger job growth, continued resolution of global supply chain kinks, and better company earnings into year-end.
Major Market Index Returns Period Ending 9/1/2021 (Annualized)
Selections include widely available ETFs. Multi-year returns are annualized and net of management fees, but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes comprise stocks and bonds, as represented by VT (Vanguard Total World Stock Index Fund ETF) and BND (Vanguard Total Bond Market Index Fund ETF). Multi-year returns are annualized. Performance is net of all management fees but does not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The S&P Dow Jones SPIVA Scorecard compares actively managed funds against their respective benchmarks semiannually.
Microsoft Key Metrics
Reuters (2021, September 3): U.S. job growth takes giant step back as Delta variant hits restaurants
BEA (2021, August 6): Gross Domestic Product, 2nd Quarter 2021 (Second Estimate); Corporate Profits, 2nd Quarter 2021 (Preliminary Estimate)
Federal Reserve Bank of Atlanta
U.S. Department of Treasury
CNBC (2021, September 13): U.S. Covid cases finally start to dip from latest peak, but delta variant still on the rise in some states