Portfolio Research Director, Kevin E. Donovan, CFA, shares his thoughts on market performance in the second quarter of 2021.

Kevin E. Donovan, CFA
Kevin E. Donovan, CFAPortfolio Research Director

Hello, I’m Kevin Donovan, portfolio research director with CJM Wealth Advisers, with the quarterly market update. The second quarter was another solid quarter for equity returns in the U.S. and internationally. And we also had positive results in the bond market. So it was a very good quarter looking at all different asset classes. The interesting thing on the equity side was that we saw a broadening out of equity returns. So in the first quarter, it was basically dominated by value stocks and their outperformance over growth stocks. So energy, financials, industrials, all did much better than growth stocks, such as technology sector stocks, in the first quarter. In the second quarter we saw it broaden outward, just about everything had a good quarter. Particularly in June, technology stocks really came back and are now almost equal with the value side. So that was a good thing.

Let’s look at the results on the chart now for the second quarter. You can see the S&P 500 had really good results, up 8% in the quarter. The Dow international stocks were pretty even at about a 4% gain, and bonds rose almost 2%. If we look back on the year to date, if we go for the full six months so far this year, the S&P pulled ahead of the Dow, so it’s up about 14% versus 13% for the Dow for the international stocks and bonds are still down about 1.6%. So very good results in the equity side. Bonds coming back recently and are moving towards breakeven.

So for the rest of the year, we’re going to be looking at the economy, how is it recovering from last year’s COVID shutdowns? Also looking at earnings, earnings have been extremely strong this year. Last quarter they were up 50% over the prior year. Obviously last year was very much impacted by the COVID shutdowns. For the upcoming quarter earning season, those earnings are expected to grow even more, about 60%, 65%, so we’ll be looking to see if companies can match or exceed that level.

Also looking to see what the Fed is going to do. Within the past couple of weeks they said that they would expect to raise rates twice in 2023, so they brought forward by a year when they expect to increase rates. We’ll also be looking to see if they talk about tapering their bond purchases. Hopefully that won’t trigger another taper tantrum like we saw a few years ago, but we’ll be looking at that. And also with the COVID and the Delta variant that is spreading right now, a lot of areas of the world do not have the access to the vaccine that we do so it could impact other economies. And even within the U.S., certain areas that aren’t seeing high vaccination rates could also be impacted by that. So those will be some of the things that we’ll be concerned about looking forward, but we are generally positive the economic outlook for the year. So, like I said, it was a great first half of the year, solid returns on the equity market. And we look forward to seeing you next time. Have a great summer.