The U.S. stock market continued to climb though the first half of 2021, despite the spread of the new Delta COVID variant globally. In fact, this June accounted for the fifth positive quarter of consecutive gains for the U.S. investment market.
Every sector of a diversified investment portfolio did well in the most recent quarter. The Wilshire 5000 Total Market Index, the broadest measure of U.S. stocks, gained 6.49% in the second quarter and was up 15.36% from January through June of this year. Looking at market sectors individually, the S&P 500 index of large company stocks gained 8.17% in Q2 of 2021 and is up 14.41% for the year. The Wilshire U.S. Small-Cap index gained 5.09% in Q2 and is up a total of 16.66% for the year. The tech-heavy Nasdaq Composite Index, seemingly fueled by our adaptation to technology in a post-COVID world, was up 11.25% in the second quarter and posted a gain of 12.73% so far this year.
Internationally, stock markets fared well also, despite a slower roll-out of COVID vaccines. The broader EAFE Index (Europe, Australasia, Far East) which measures the stock growth of companies in developed foreign countries had a Q2 gain of 4.37% and year-to-date gain of 7.33%. Emerging Markets, as measured by the EAFE EM index had similar growth patterns with returns of 4.42% for the second quarter and 6.46% for the first half of the year.
Bonds, or fixed income, are typically a third major component of a diversified portfolio. In the bond market, long-term interest rates remain at record low rates, with the 3-month, 6-month and 12-month bonds just reaching positive return territory, and the 10-year Treasury bond yielding 1.465%.
The consecutive quarters of gain are welcomed, but do come with trepidation as many wonder if we’re on the brink of a correction. Some analysts feel that the U.S. economy might experience higher inflation in the near future as there was a single month increase in the Consumer Price Index of 5% in June.
Also notable is the booming real estate market. According to S&P CoreLogic Case-Schiller, the average home price rose 13.3% in a single month, following a 12% jump in the month prior. At the same time, the number of homes on the market fell 21%, creating a supply and demand issue. Today, approximately half of all homes put on the market sell within a week, and often above asking price! Some note the demand for larger homes stems from COVID, as more people look to work in a hybrid environment and want dedicated work space at home. Concurrently, new home construction has been achingly slow, initially due to COVID delays; now, a lack of materials such as lumber is further driving up the costs of construction. Finally, interest rates are at record lows (some below 3% currently), allowing many to refinance into lower interest rate loans, upgrade to a larger home, or for millennials, enter the market for the first time. Some question if this could lead to a housing bubble like we saw in 2008. However, today’s lending standards are extremely high and loans today are generally smaller in proportion to the house values, meaning the lending risks are nowhere near where they were during the last housing crisis. Some joke that in today’s market, you can’t get a loan unless you can prove you don’t need it!
Congress is working on passing President Biden’s simulative infrastructure bill which would help to infuse funds into state and local governments and further assist Americans return to work. Many businesses are feeling steadier with manageable COVID uncertainties, and therefore businesses are competing to hire new workers. Although there is currently a labor shortage, more eligible employees are expected to enter the workforce later this year. As a result of this confidence, consumer spending is rising and corporate earnings are projected to come in at record levels by the end of the year.
There could be some blips in the market as we enter the second-half of the year. Congress still needs to compromise on Biden’s proposed new corporate tax rates and estate taxes, which could impact future growth projections for the economy and estate planning from a financial planning perspective. Finally, the government will likely taper economic support in the forms of federal stimulus and large purchases of Treasury bonds. While the future is unknown, we can take some comfort that investing in a diversified strategy helps to weather volatility, if and when it occurs.
Bob Veres Media, Insider Information
Russell index data: http://www.ftse.com/products/indices/russell-us
S&P index data: https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
Nasdaq index data: http://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx
International indices: https://www.msci.com/end-of-day-data-search
Treasury market rates: https://www.bloomberg.com/markets/rates-bonds
Bond rates: http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/
The commentary on this letter reflects the personal opinions, viewpoints and analyses of Kondo Wealth Advisors, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc. or performance returns of any Kondo Wealth Advisors, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this letter constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.