Please find this month’s market updates below. This list is intentionally brief and uses ETFs that are readily available to all investors to represent the major markets. In the second section, there are five simple portfolio mixes, which are described by low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope these few, but important, data points are of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
In June, stocks and bonds did well, capping another positive quarter as the economy and the markets continued to rebound from the COVID-19 pandemic.
The total U.S. stock market (VTI) rose 2.48% in June. Developed international equities (VEA) had a tougher month, sliding .93%. Emerging market equities (VWO), meanwhile, gained 1.3%. Municipal bonds (MUB) were up .35%, and the total U.S. bond market (BND) rose 0.9%.
In June and throughout the second quarter, market appreciation was driven by robust earnings growth against a backdrop of federal stimulus, low interest rates, and strong consumer demand. According to the Atlanta Fed’s estimate, the S&P 500 index rose 8.2% during the period, and the economy expanded 7.8% in annualized terms.
June brought good news on the jobs front: U.S. employers, led by leisure and hospitality businesses, hired 850,000 workers. The gains were the biggest in 10 months. The unemployment rate did rise to 5.9% as more people left the sidelines to begin job hunting.
Meanwhile, inflation remains a hot topic. Popular measures of inflation – the Consumer Price Index, the Producer Price Index, and the Personal Consumption Expenditures Index – are all above the acceptable 2% range stated by Federal Reserve chairman Jerome Powell.
The big question is whether the current spike in inflation – fueled partly by supply and demand imbalances as the economy reopens – will prove to be transitory or persistent. The bond market can’t seem to make up its mind: The yield on the benchmark 10-year Treasury note spiked to 1.74% by March 19, after ending 2020 at 0.93%. Such increases typically signal expectations of prolonged inflation, but yields have subsequently drifted steadily lower. By late June, the rate on the 10-year was at 1.45%.
Earnings reports scheduled to be released over the next few weeks should provide clues about the inflation outlook. Companies are expected to weigh in on supply chain disruptions, labor challenges, cost increases, and consumer demand.
Regardless of where inflation is headed, the economy appears to be on increasingly solid footing. The non-partisan Congressional Budget Office’s updated projections call for full-year GDP growth of 7.4% – double the forecast it made in February.
Even against a positive economic backdrop, ups and downs in the market are to be expected. It’s impossible to predict when the peaks and troughs will occur, which sectors will prevail from month to month, or when volatility will strike. All of this underscores the importance of maintaining a well-diversified investment portfolio, limiting fees and taxes, and taking the long view.
Major Market Index Returns Period Ending 7/1/2021 (Annualized)
Selections include ETFs generally available to consumers. 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 are Stocks/Bonds and are represented by VT/BND; returns are annualized. Vanguard funds are a net of all management fees but do 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 SPIVA Scorecard is a robust, widely-referenced research piece conducted and published by S&P DJI that compares actively managed funds against their appropriate benchmarks on a semiannual basis.
Bloomberg (2021, July 2): U.S. Jobs Jump by Most in 10 Months as Economy Gains Steam
U.S. Consumer Price Index, June 2021
U.S. Producer Price Index, June 2021
Federal Reserve Bank of Dallas: Trimmed Mean PCE Inflation Rate
10 Year Treasury Rate
Reuters (2021, July 1): U.S. CBO doubles growth forecast to 7.4%; sees slight drop in federal deficit