July 2021 Market Update

By Brian Johnson, Viridian Chief Investment Officer

Summary: Almost all markets did well in Q2. The S&P 500 has now risen 100% from its pandemic low.

Stocks once again posted strong gains over the most recent quarter ended June 30, 2021. The S&P 500 rose 8.55% for the quarter, reaching a 15.25% gain year-to-date (YTD). It has only been sixteen short months since the S&P 500 Index, in the early months of the pandemic, reached its low point of 2191.86 on March 23, 2020. Who would have guessed that a year and four months later, that bellwether index for stocks would double? Yet, on Tuesday of this week (July 12, 2021) the S&P 500 reached 4386.68, a gain of slightly more than 100% since last year’s low. That rebound has been absolutely amazing.

In Q1 of 2021 there was a marked difference between stock and bond performance, with stocks faring well but bonds suffering. However, in Q2 we saw positive returns across and within almost all asset classes. It’s not often that both stocks and bonds make large gains in a quarter. In fact, since 1980, the S&P 500 and Treasury Bonds have both risen more than 5% in a quarter just 13 times.[1]

Yet Q2 of 2021 saw 10 of 11 S&P 500 sectors finish the quarter higher, and stock markets in six of seven major countries/regions had gains. Every major bond sector managed to make gains in Q2, as well, as fears over runaway inflation subsided.

Some specifics for the second quarter:[2]

  • The NASDAQ Composite Index moved higher by 9.5%;
  • Internationally, the MSCI EM Index (Emerging Market Stocks) rose 3.8%, and the MSCI EAFE Index (Developed Market Stocks) rose 4.8%;
  • Bonds fared relatively well, too, with the Bloomberg Barclays U.S. Aggregate Bond Index rising 1.8%;
  • As inflation fears subsided, Q1’s near-vertical spike in long-term rates reversed, and as a result, longer-term Treasury Bond values (which move in the opposite direction as rates) fared well, rising almost 6.5%.


As always, we ask ourselves, “What’s next?” Well, U.S. stocks are still in an incredibly strong secular (very long-term) bull market. Given ample liquidity and continued stimulus by our government, it feels a bit like there is no end to this bull market in sight.

As we mentioned last quarter, however, it pays to watch the actions of the Federal Reserve Board (“Fed”), which recently acknowledged that conditions in the labor market have “improved substantially in the first half of the year as the economy reopened and activity rebounded.” This sounds similar to the Fed’s criteria for tapering its purchase of bonds and mortgage-backed securities; it has made such purchases throughout the pandemic, both to stabilize fixed-income markets and to pump money into the economy (to stimulate growth). A higher likelihood of tapering asset purchases means that we need to be especially alert in the near future for the Fed to more publicly indicate such plans. If/when it does, that won’t necessarily signal the end of the bull market. But it likely will shift markets into the next logical phase, wherein the attractiveness of relatively riskier assets (e.g., stocks) begins to diminish. For now, we remain heavily allocated to stocks—as we have for some time now—with our models that include both bonds and stocks near their maximum stock allocation. We see nothing to suggest that we should change that in the near future.

[1] According to Ned Davis Research

[2] Source: Ned Davis Research

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