2nd Quarter 2021 Market Commentary

Hypomone, is the Greek word for endurance.  It seems that we have endured quite a lot over the past 12 to 18 months dealing with lockdowns, lockouts, political turmoil and much more.   Perhaps our Hypomone will pay off soon.  We are turning the corner on vaccine availability and distribution, and we seem to have some political clarities.  We remain optimistic about the next several quarters.

Just a little over a week ago, the bull market turned one year old!  Since the low of March 23rd, 2020, we have seen over 70% gains in most cases.   Our number one rule is “Never time the market,” and this provides an excellent example as to why.  During that same time, the real return on cash after inflation was negative, which remains the case today.

Some would suggest that given the recent week’s volatility in the markets the bull market is over.  We respectfully disagree.

• Equity Market Outlook:

• Fixed Income Market Outlook:

• Keeping a Long-Term View:

Equity Market Outlook:

We believe the bull market remains intact and healthy.  Pullbacks and consolidation are a normal part of the investment journey and, we believe, healthy.  In the past thirty days or so, we experienced a pullback and consolidation in equity prices, which we believe was primarily the result of severe weather in February, a prominent hedge fund’s forced liquidation of significant positions, and a global supply chain scare with the blockage of the Suez Canal.    Additionally, talk of a possible increase in taxes and interest rates have started to increase.  We believe all these things, contributed to the recent decline in some stock prices. We tend to take advantage of these times to adjust positions, maintain our diversification, and put additional cash to work.  Vaccines continue to be rolled out. Except for a few hot spots, virus cases and death rates have declined here in the U.S. Production numbers are moving higher, although not without a few hiccups such as a shortage of semiconductors and the stranded oil tanker blocking the Suez Canal.  Home sales continue to outpace supply.  Although increased rates will likely put some downward pressure on these sales, all the new home starts typically lead to increased purchases of supplies, furniture, décor, etc. which should keep the retail sales and consumer activity healthy.

Global conditions are not as good as here in the United States, with several countries reporting an increase in virus cases and deaths causing additional shutdowns. We continue to see the U.S. as the best opportunity for investors; however, we see two exceptions as emerging opportunities over the next few quarters that we speak to in later updates.

Fixed Income Market Outlook:

If we had an aversion to fixed income (bonds) before, our feelings toward this section of the market have gotten worse over the past several months.   Most conservative fixed-income investments are currently showing negative real returns.  Einstein once quipped that the eighth wonder of the world was compound interest.  Here is the thing about the “wonders of the world”; most of them no longer exist.   The power of compounded interest is no longer working for savers and those who need to live off their investments.  So long as inflation remains above the interest earned on conservative fixed income, the power of compounding interest rates works against investors.  So, has that “eighth wonder of the world” also faded for good?  Only time will tell.  For now, many investors need to get creative to generate the protection and income they need to reach their goals.

Earlier in March, the FOMC chair, Powell, let us know that the Fed would likely tolerate inflation rates above 2% for an unspecified period.  Inflation is widely expected to hit 2.5% for 2021.  Meanwhile, the recent spike in the 10-year treasury yields only reached 1.8%, with highly rated corporate fixed income not much higher.  We will see how far and how quickly rates rise.  For now, anyone holding long-dated fixed income securities are likely seeing their accounts move lower in value while their equity positions this past month also may have been more volatile.  This is the opposite of what fixed income used to do for portfolios.

Keeping the Long-Term View:

The adage that it is not timing the market but time in the market that matters most has again remained true.  So, what is a long-term view?  One year?   Two years? Ten? Today, in a world of short attention spans, the idea of long-term has changed, so it seems wise to define what we mean by long-term.  We define the long term as at least a five-year time horizon.  If your intestinal fortitude can see you through the next five years and you are generating the income you need during that time, it is our opinion, and if history is any guide, you will do well staying in the market during volatility.

As I have mentioned before, staying in the market does not necessarily mean closing your eyes and having the same portfolio that everyone else has.  Prudent investors will continue to select the best places to be within the market.  We believe investors who watch and follow where the market, business, and economy will be rather than where it was before will be successful.  Famed football quarterback Tom Brady, when asked how he continues to be successful, gave as one of the reasons that he ‘adapts’.  Successful investors in the future will be the ones who adapt to changing market conditions and their individual needs.  To learn more about how we may be able to help you with a detailed, personalized plan unique to your needs, CLICK HERE and schedule time directly with me where we will talk directly about your personal situation, goals, hopes, and dreams.