A Look Back
Stephen Stills released the above title as his lead single from the self-titled album in 1970. David Crosby and Graham Nash, his fellow members of the classic singing group Crosby, Stills & Nash, sang background vocals on this chart-topper. Stills later said that he stole the line from friend and fellow musician, Billy Preston. The song specifically talks about the need to make the best of a situation, even if it is not ideal. It is our belief that the same can be said about our current environment in the markets and economy.
As we are now a year and half into the Coronavirus pandemic, most of us have found few things ideal…or perfect. We have written before about the resilience of our financial markets, and perhaps that has never been on display as brightly as has been the case over these eighteen months. We have had to deal with mandates and protocols that no one enjoys. The tests have been real and intense…and yet we persevere as best we can. So too have the stock markets. The large cap S&P 500 continues to roll along with a 3.04% return in August, bringing the YTD number to an impressive 21.6%. This is already over double the historical annual average with four more months to go in the year. The closely-watched index has closed on 54 record highs in 2021. That is the most ever through the month of August. Further, 12 of those highs came in the last month alone.
By any measure, it has been an amazing climb from the lows of March 2020, as the index has almost doubled. Other equity asset classes posted positive gains as well in the month as small-cap domestic, international developed, and emerging markets all delivered small single digit gains. Core bonds took a pause with a slight negative return of -.19%, and is now -.69% YTD. U.S. real estate continued its momentum with a 1.91% return, and is now up over 31% for the year. Economic releases have been mixed. The most recent jobs report disappointed as nonfarm payroll increased by just 235,000 versus expectations of 720,000. The unemployment rate did fall to 5.2% from 5.4% a month earlier. The August number was the worst reported since January, as many believe the recent surge in Covid cases brought on by the Delta variant is at least partly to blame. The spike in inflation continues to be a concern for many as the debate about whether it is transitory or not plays out in front of us. The most recent report showed a .5% increase in July, and a one-year jump of 5.4%. That level is certainly higher than the 2-2.5% mark that the Fed has said that it feels comfortable with. Regardless, investors have consistently made the best of current situations and driven the prices of many asset classes higher.
A Look Ahead
It is difficult to look too far ahead in any part of our lives as we all deal with the unpredictable nature of the pandemic. As the vaccines rolled out in the beginning of the year and the winter surge of Covid cases waned, there was a real sense of a return to some kind of normalcy. That feeling has lessened as the Delta variant caused a spike in cases worldwide over the last couple of months.
Again, even with this backdrop, most stock indexes are either at or near all-time highs. We recently took the opportunity to trim the gains in most client portfolios to get back to a neutral stance. We have yet to experience a 10% correction this year. Historically that happens around one and a half to two times a year. We like things that work over long periods of time. We know that underperformance gives way to outperformance and vice versa. Having the patience and consistency to manage to your investment objective is key…and so is the ability to adjust and “love the one you’re with."