"COMMENTS ON THE QUARTER" - Portfolio Review Comments for the 3rd Quarter 2021

OCTOBER 2021

Dear clients and friends,

Global equity markets continued to surge through July and August but experienced a modest pull-back in market performance in the final month of the third quarter of 2021. This comes on the heels of five straight quarters of positive stock market growth.

US equities, measured by the S&P 500, increased modestly by 0.58% for the third quarter; the index is up 15.92% since the start of the year, outpacing historical annual returns. The Russell 2000, tracking mid- and small-cap stocks, suffered more than most during the period, decreasing in value by 4.36% on the quarter but increasing by 12.41% on the year. The Dow Jones Industrial Average was down 1.46% during the quarter and up 12.12% year-to-date. From July through September, technology stocks, measured by the NASDAQ, were down 0.38% but had a positive return of 9.07% since the beginning of the year.

International stocks have undergone market performance similar to domestic equities during the year. Developed equity markets, measured by the MSCI EAFE Index, declined by 1.03% in the July to September period, but has increased by 3.30% year-to-date. The MSCI EM Index, which tracks emerging equity markets, suffered a more significant decline by 8.84% during the quarter, bringing the annual loss to 2.96%.

Fixed income markets remained relatively flat during the quarter. The Barclays Aggregate Bond Index was up 0.5% for the quarter and down 1.55% for the year-to-date period. U.S. Treasury T-Bills were up 0.01% for the quarter and 0.03% year-to-date.

Recent equity market declines may have been a result of several economic and political concerns including inflation, COVID-19 resurgences, global supply constraints, labor market shortages, potential U.S. debt default, and geopolitical tensions, particularly in the Middle East and China.

Inflation may be more volatile in coming years than originally predicted, particularly as the global community continues to suffer from supply shortages due to the COVID-19 pandemic. As demand has returned to normal levels, goods, services, and labor remain in shortage, driving prices higher. This coupled with an increase in monetary supply, particularly around recent stimulus spending, may drive prices further upward.

Economic markets have also likely been affected by the coverage of the Afghanistan withdrawal and now, the increased tensions between China and Taiwan.

A positive jobs report from July was followed by a very disappointing jobs report in August. The labor shortages have been driving wages upward, which will hopefully encourage employees to re-enter the workforce. Assuming the jobs reports for the coming months show rising employment, we may see the Fed taper its current asset purchase rate. A mild boom in the job market could provide relief to families that have struggled through the COVID-19 pandemic, while providing some downward pressure on inflation.

Markets are forward-looking and do not like uncertainty. Unfortunately, we are living through a period of increased uncertainty and this combination can result in sharp, sudden swings in the market. In times of short-term upheaval, we find it particularly important to have the discipline to focus on long-term principles of investing. Abandoning a thought-out investment plan amid volatility can lead to lock in of losses or a miss out on gains. Investors have long been rewarded for adhering to long-term perspective and discipline—we continue to encourage it. Stay the course.

Comments on the Quarter