Market Commentary - October 2021

As U.S. and other world markets recover from the pandemic and people are getting back to some semblance of normalcy, our Investment Strategy Group, is observing a U.S. consumer who is getting Back On Their Feet with record net worth, a secure balance sheet and upward sloping wages. Stimulus is giving way to real economic growth.

Here’s what we believe:

1. The recovery from the COVID-19 pandemic continues and we are progressing back to a mid-cycle economic environment. The U.S. consumer is Back On Their Feet and we expect it to drive economic growth and in turn, corporate profits. And this sets the stage for a continued uptrend in equity markets, but it will likely occur under the backdrop of greater volatility than we’ve experienced so far in 2021.
2. We finished the quarter with the first 5% pullback of 2021. Pull backs of this scale tend to occur six times per year. But that’s not the full story, the equity market has been going through a rolling leadership transition that smooths out index performance and represents an interesting fishing pond for active managers.
3. Continued earnings growth will improve equity valuations across the U.S. market and temper concerns of elevated price to earnings metrics. While we think growth companies have more room to run, we expect market participation to broaden and incorporate small caps, value, and international securities.
4. Investors need to be very strategic when allocating to fixed income. Unconstrained, opportunistic, non-traditional public fixed income and private credit represent attractive allocations that not only diversify but hold total return characteristics. While we recognize the yield of the 10-year treasury bond has risen to 1.61% (as of 10/11) we don’t see a large move over 2% in the near-term.
5. Real assets, convertible bonds and liquid alternatives have performed well and continue to offer total return as well as diversification attributes that are favorable to client portfolios.
6. As we write this commentary, the full-year 2021 U.S. GDP growth is estimated to be 5.9%, the highest level since 1984, and it’s estimated to be 4.1% next year. The U.S. consumer will leverage its solid position to drive the economy forward, which translates to a robust corporate profit environment and a tailwind to risk assets.

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