Market Review - Quarter 2, 2021
As the global economy recovers from the pandemic with varying degrees of success, global stock and bond markets posted broad gains in the second quarter.
Source: FactSet
Notable among them was US equities which gained 8.5% for the second quarter and 15.3% for the year led by easy monetary and fiscal policy, like potential infrastructure spending, strong economic recovery and robust corporate earnings. In the first half of 2021, US equities marked 34 record highs and the largest gains since 2019¹. As equity markets have rallied, volatility fell to pre-pandemic lows².
Source: FactSet, CNBC, CNN, Reuters, Yahoo Finance, NY Times, JPMorgan, US Bureau of Labor Statistics
International markets trailed US equity markets for both the quarter and the year. Developed international markets gained 5.4% and trailed US equities due to negative returns in Japan over slow vaccination efforts³. Finally, regulatory and policy tightening concerns in China held back emerging market equities to a 5.1% gain for the quarter.
Within the US sector, performance was varied with results ranging from 13.1% for real estate to -0.4% for utilities. Real estate continued its climb benefiting from the re-openings across the country. Energy was the third best performing sector which gained 11.3%, as Brent crude oil prices crossed $75 per barrel for the first time since 2018⁴. Energy remains the top performing sector for the year, up 45.6% as oil prices commensurately climbed 50% in 2021. Finally, the strong economic recovery made a traditionally defensive sector like utilities less attractive relative to other sectors and lost -0.4%
The outperformance of economically sensitive value stocks that dominated the market since the news of an effective vaccine in late 2020 reversed course in the second quarter. Growth stocks outperformed value stocks as technology shares surged on falling interest rates and better earnings expectations. For the quarter, large- and mid-cap growth stocks beat their value counterparts, but small-cap value still led small-cap growth.
In the bond market, after the Federal Reserve acknowledged it was on watch for inflation, the yield of the 10-year Treasury note fell 30 basis points to 1.45% from a high of 1.74% in March⁵. As rates fell US bonds gained 1.8% during the quarter but was unable to reverse the losses from prior quarter and remains negative (-1.6%) for the year. High-yield bonds gained 2.7% for the quarter and 3.6% for the year and continues to outpace government and corporate bonds.
REITs continued its climb, returning 12% for the quarter and 21.3% for the year. Commodities also gained 13.3% in the second quarter, led by energy which was up 23% for the quarter. Inflation concerns also led gold and silver higher by 3.5%, and 6.2% respectively for the quarter. However, gold remains down -7% for the year. In REITS, with the exception of hotels, all other REIT sectors saw positive returns with self-storage up nearly 24% for the quarter.
[1] MarketWatch - S&P 500 books 34th record of 2021 as Dow closes up over 200 points, nears May 7 record high
[2] FRED Economic Data- CBOE Volatility Index
[3] JP Morgan - Monthly Market Review
[4] Macro Trends - Brent Crude Oil Prices - 10 Year Daily Chart
[5] U.S. Department of the Treasury - Daily Treasury Yield Curve Rates
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