Quarterly Market Update 9.30.2021

Scott Campbell |

The U.S. stock market was up 0.03% in the third quarter of 2021 and up 14.92% year to date.  The U.S. bond market was down -1.08% in the third quarter and down -2.50% year to date.  The month of September was very volatile dragging performance for the quarter down.  The U.S. stock market was down -4.58% in September while the U.S. bond market was up 0.34%. 

Almost all areas of the Morningstar equity universe were down for the quarter.  The battle between “stay at home” and “re-open” stocks subsided during the quarter because of the stall in the re-opening which hurt value “re-open” stocks and inflation which hurt growth “stay at home” stocks.

One of the culprits for the poor performance in September is the same as earlier in the year: inflation.  Inflation is currently at levels not seen for many years.  Even the Fed, which has been telling us this inflation is temporary and related to the economic growth from the re-opening, is surprised by the current level of inflation.  Long time market watchers have seen the Fed loose control of inflation in the past.  Inflation is a normal though.  We have become accustomed to very low inflation for a very long time.  But that was not normal.  The U.S. economy can handle inflation if it doesn’t get too high.

The growth of the economy due to the re-opening is a part of the cause of inflation.  The re-opening stalled some at the beginning of the quarter due to the surge of the Delta variant which increased infections and hospitalizations.  But the numbers are decreasing all over the world, including here in the U.S.  And vaccination rates are increasing here and around the world.

Another cause for inflation is the government spending which has sky-rocketed over the last two years.  Government spending has been excessive for many years by both parties.  The existing debit combined with the latest round of proposed spending will certainly negatively impact future generations.  This week we repeatedly heard the most dumbfoundingly insane statement I have ever heard from elected officials.  We were told the proposed $3.5 trillion spending bill has “zero cost”.   The politicians making this statement either have no understanding of basic economics or think that the public does not.  To illustrate: if you buy a car with cash, that car did have a zero cost.  It was not free, which is the definition of something that costs zero.  That car most certainly had a cost.  And by paying cash, that cash can’t be used to buy other things.  For the time being both bills are stalled in Washington. 

The current correction should be temporary like all the corrections we have experienced since and including the Covid crash.  September and October are historically the worst months for the stock market.  Hopefully this year September experienced all the negativity normally experienced in both September and October.