The reopening spark: Market reflections for second quarter 2021

This article was co-authored by Kevin Calhoun, CFA®, Investment Associate.

In the second quarter of 2021, the domestic economy rebounded, inflation readings continued to grab headlines, and the Federal Reserve maintained a cautious approach to monetary policy. Here are Q2 highlights:

• Global stocks built on the solid momentum of the first quarter and continued higher in the second quarter of 2021. The domestic economy reopened and robust economic data revealed a pickup in sectors of the economy that were most impacted by COVID-19.1 With resurgence in economic activity and many businesses experiencing supply constraints, inflationary concerns remained in the spotlight for many investors.

• As detailed in our “Inflated expectations?” investment letter written last month, elevated inflation readings — especially relative to recent history — are coming at a time when aggregate demand is increasing amid economic reopening, commodity prices are rebounding and supply is constrained coming out of the pandemic. While the path of inflation is difficult to predict, it’s important to keep in mind that recent higher annual inflation figures are being calculated off a very low baseline from early last year when inflation was nominal.

• The Federal Reserve expects to maintain an accommodative monetary policy stance until the labor market significantly improves and inflation is on track to temperately exceed two percent for some time.2 While the Federal Reserve will certainly be in the headlines the remainder of the year with media outlets watching its every move, we remind investors that a long-term perspective coupled with a well-diversified portfolio has historically been a recipe for investing success.

Second quarter returns

Second quarter returns 2021

Returns shown in the chart above are for second quarter 2021.
Source: Morningstar®, data as of June 30, 2021. See disclosure for more information.

Equity markets advanced in the second quarter. While U.S. large cap growth stocks were the top performers during the quarter returning +11.9%, U.S. small cap value stocks maintained their considerable year-to-date lead returning +26.7% in 2021 thus far. Some additional highlights:

• U.S. large cap value stocks underperformed large cap growth stocks while U.S. small cap value stocks outpaced small cap growth stocks during the quarter.

• A modestly weakening U.S. dollar relative to international currencies aided returns for U.S. investors in international markets.

• Developed international and emerging markets lagged U.S. markets during the quarter but remain in positive territory year-to-date.

World Asset ClassesSource: Morningstar®, data as of June 30, 2021. See disclosure for more information.

Investment-grade and below investment-grade fixed income sectors experienced positive performance in the second quarter aided by falling intermediate and long-term interest rates and narrowing credit spreads. Items to note:

• U.S. treasury yield curve flattened as short-term rates rose and long-term rates fell. Two-year treasury yields rose 0.09% over the course of the quarter while 10-year treasury yields declined 0.29%.3

• Municipal bonds underperformed their taxable counterparts during the quarter but have experienced positive returns year-to-date.

• U.S. corporate and high-yield credit spreads continued to narrow during the second quarter and lower quality segments of the bond market outperformed higher quality segments.4

Those are our highlights for the second quarter of the year. If you have any questions about how the above information impacts you, your finances or your investment portfolio, contact a Wipfli Financial advisor.

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Market reflections for second quarter 2021

U.S. Stock Market: Russell 3000 Index
International Developed Stocks: MSCI EAFE NR Index
Emerging Markets Stocks: MSCI EM NR Index
U.S. Bond Market: Bloomberg Barclays Aggregate Index
Emerging Markets Bonds: JPM EMBI Global Diversified TR Index
Large Cap U.S. Stocks: S&P 500 Index
Small Cap U.S. Stocks: Russell 2000 Index
Int-Term Municipal Bonds: BBgBarc Municipal 1-10Y Blend 1-12Y Index
High Yield U.S. Bonds: ICE BofA BB-B US CP HY Constrained Index

Return data represent past performance and are not indicative of future results. Historical returns of indices do not reflect applicable transaction, management or other applicable fees, the incurrence of which would decrease historical performance results. Index information has been compiled by Wipfli Financial from sources Wipfli Financial deems reliable, but has not been independently verified. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only. Indices are unmanaged. It is not possible to invest directly into an index. Any charts and graphs represented herein are for informational purposes only and cannot in and of themselves be used to determine which securities to purchase or sell, or when to purchase or sell securities.

Source: © [2019] Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Rafia Hasan

CFA, CFP® | Principal, Chief Investment Officer

Rafia Hasan, CFA, CFP®, is the Principal and Chief Investment Officer for Wipfli Financial Advisors, based in Chicago, IL. Rafia leads Wipfli Financial's Investment Committee and has a deep knowledge of the financial markets, specifically in the areas of alternative investments and private equity. She also specializes in personal financial planning and estate planning for women investors.

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The reopening spark: Market reflections for second quarter 2021

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