Stock markets around the world were mixed and volatile in the third quarter as worries surfaced over slowing economic growth and resurgent COVID-19 cases. In the U.S., large companies as measured by the Russell 3000 fell marginally (-0.1%), and the S&P 500 gained slightly (+0.58%). The Russell 2000, measuring smaller companies and often more sensitive to growth changes, fell (-4.36%). A similar story was seen in foreign equities, as the MSCI World ex-US (developed markets) fell (-0.66%) and the more volatile MSCI Emerging Markets Index fell (-8.09%).
Yields on the 10-year treasury rose slightly, ending the quarter at 1.53%, leading to both U.S. and global bonds returns treading water. For the full year, a rise in rates has led to small negative returns for the U.S. Aggregate Bond Index, which is down (-1.55%).
Rising energy prices surprised many, as OPEC + maintained production discipline while demand increased. Chinese brownouts made headlines and natural gas prices soared. Crude oil (WTI) finished the quarter at $75.03 per barrel and has since broken above $80. The price of gold was relatively flat for the quarter closing at $1,743/oz.
In the face of above-trend inflation and a tight labor market, the Federal Reserve began to scale back their open market debt purchases in November. Specifically, they are initially reducing the purchases by $15 billion per month. While rate hikes are not expected until 2022, it seems clear the Fed is beginning to take its foot off the liquidity gas pedal.
Manufacturing and services measures continue to grow, indicating strong demand for goods and services. And while the number of new jobs created in September missed forecasts and showed only 194,000 new jobs, the unemployment rate fell to 4.8%, keeping inflation concerns in the news. Many workers who left employment during the pandemic have not returned to work despite plentiful open jobs. This anomalous trend (lots of jobs, few takers) continues to keep inflation bubbling — over the last 12 months, CPI has increased at 5.3%, and analysts are keeping a close eye on the trend.
As winter looms, the Delta variant remains a cloud on the horizon, but the summer surge is abating, and case numbers have moved in a positive direction. In the U.S., well over half of the population reports being fully vaccinated, and those numbers continue to climb, albeit at a slower pace. The onset of winter and people once again indoors in close quarters will be a further test of the resilience of health as well as the economy.
As always, please call us to address your questions, and make sure to apprise your advisor of any changes to your financial situation.