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
September was a poor month for stocks, as the benchmark S&P 500 index fell 4.7% amid supply chain bottlenecks, stubborn inflation, and other concerns.
The total U.S. stock market (VTI) fell 4.46%, but the damage wasn’t limited to this country. Developed international equities (VEA) were down 3.38%, and emerging-market stocks (VWO) tumbled 3.34% for the month amid signs of slowing global growth. Meanwhile, the U.S. bond market (BND) fell 1.01%, and municipal bonds (MUB) dropped 0.70%.
Despite the September slump, U.S. stocks are still up nicely for the year, with the S&P 500 having gained 15.9% through the end of September. The fundamental reason is that company earnings have exceeded analyst expectations throughout the year.
But we’re increasingly hearing about the impact of higher prices and supply chain disruptions on companies’ costs, which could pressure profit margins. In a related issue, businesses across diverse industries are struggling to meet demand due to shortages of everything from semiconductors to bottle caps.
Do these and other pressures mean markets could fall sharply? The declines we have seen so far this year have been relatively muted, and a sharper drop, while not guaranteed, is possible. It’s in markets’ nature to rise and fall, sometimes dramatically. The key is to stay calm and focus on the long term.
Let’s look at some of the economic factors that can impact markets, starting with inflation. Over the past 12 months, the Consumer Price Index is up 5.25%; that index includes gasoline prices, which now average $3.26 per gallon nationally. The Producer Price Index, a gauge of the inflation that producers are experiencing, is up 8.3%. These measures are significantly above the acceptable ranges stated by Federal Reserve chairman Jerome Powell.
Interest rates rose significantly in September, with the yield on the 10-year Treasury bond rising to 1.53% from 1.3% and the 30-year yield climbing to 2.09% from 1.93%. Bonds’ yields rise as their prices fall—and investors have been selling because of anxiety over when central banks might raise interest rates.
Meanwhile, after increasing at an annual rate of 6.6% in the second quarter, U.S. real gross domestic product was expected to increase by only 1.3% in the just-completed third quarter, according to the Atlanta Fed.
In more concerning news, the U.S. economy produced 194,000 jobs in September as the Delta variant of Covid spiked. That was down from 366,000 in August and more than 1 million in July. The unemployment rate fell to 4.8%, apparently partly due to health fears.
What’s next for the markets? The truth is that nobody knows. Again and again, markets have reminded us of their unpredictability. But it’s also true that over long periods, they’ve always rewarded patient investors. Our advice is to maintain a diversified investment portfolio, minimize taxes and fees to keep more money in your pocket, and take the long view.
Major Market Index Returns Period Ending 10/1/2021 (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.
Federal Reserve Bank of Atlanta