Q3 2021 Market Insights
We’ve been enjoying a gorgeous fall here in Jackson as seasons transition and bright, vibrant cottonwoods and aspens light up the surrounding valley. As usual, the latter half of summer around town and the National Parks was busy [more record visits] but good weather and intermittent wildfire smoke gave us ample time to get outdoors to enjoy what we love best about our backyard. We fished, camped, spent time on the water, and put in many miles on the trails. We also truly enjoyed seeing friends and neighbors at events that were put on hold the previous year like the Fourth of July Parade, Teton County Fair and can’t-miss Wilson Chicken Fry.
This autumn, we’ve been regularly reminded of the unique beauty of Jackson’s community and its members. In September, Old Bill’s Fun Run celebrated its 25th Anniversary with record-breaking contributions to the event’s Match Fund. The same weekend, our community came together to honor fallen Marine, Rylee McCollum, a Jackson native who lost his life during the U.S.’s evacuation from Afghanistan. More recently, we celebrated with a Broncs football win at homecoming, and enjoyed the last People’s Market of the season at the Farm to Fork Festival. With snow in the forecast and our waterways at historic lows from minimal precipitation, we feel fortunate that we squeezed in as much as we could with family and friends this summer.
Like the change of seasons, the U.S. economy is expected to begin its transition from a liquidity-supported economic recovery to a self-reinforcing expansion cycle. The economy is shifting to a slower, more sustainable period of growth. This shift can be seen across leading economic indicators and equity indexes like the S&P 500, which posted its smallest of six consecutive quarterly gains this past quarter to finish at 4307.54. This change of pace, accompanied by policy uncertainties such as the debt ceiling, ongoing supply shortages, U.S.-China trade tensions, and continued Coronavirus concerns, led to increased market volatility throughout the third quarter. Risks of inflation and fears of shifting Federal Reserve policies also kept markets on edge. However, market tailwinds prevailed. Earnings growth also remains strong, which could support higher equity prices and continued market growth.
Even with a downward revision to U.S. economic growth forecasts, GDP is still expected to be the strongest it’s been in over 35 years. Emerging markets and other developed nations are also expected to experience more growth through 2022, further strengthening the breadth of the global economic recovery. Domestically this should help drive wage growth and strengthen the job market as labor shortages ease. Investors should remain disciplined and focused on a long-term investment strategy. Overall, markets are positioned for continued growth, but heightened volatility is likely to persist and test investor’s endurance. Reexamine your strategic allocations and make tactical adjustments as needed. Be selective if you are putting cash to work, and consider dollar-cost averaging as an approach to take advantage of the anticipated volatility. High quality U.S. asset classes also remain favorable, especially large cap equities. For income investors, corporate earnings are expected to remain strong, as well, which should support dividend growth. It’s also a good time to examine your portfolio for tax harvesting opportunities as we enter the final quarter of the year. And, if you’re overweight in a single security or certain sectors, like technology, now might be a good time to consider diversifying. Diversification can help reduce risk and minimize recovery time after a loss, which can normalize returns over extended periods.
While the change of seasons can be bittersweet, change always presents new opportunities. We’re getting excited about another adventure-filled winter, but we’ll gladly soak up those fleeting crisp and sunny days of fall. As the economy shifts gears to a more sustainable pace of growth, investors should also embrace the change and explore new ways to add value to their portfolio. We wish you and your family a happy and healthy autumn and a wonderful upcoming holiday season.
The Wind River Capital Management Team