Q3 2021 Stock Market Commentary

Market volatility is back in a big way. In our last report, we noted that the market was “climbing a wall of worry” as the market just seemed to go up and up and up despite pockets of bad news here and there. Late in the quarter, however, that unmitigated move higher finally hit a roadblock – Inflation! Somewhere along the line in the past month or two, the market finally recognized that this theory of inflation being “transitory” may perhaps be wrong. That maybe inflation is now something that we need to battle. As such, interest rates began to move up and it stalled the rally.

Value Stocks Lead

In early August, the 10-year treasury had made its way down to 1.19% — its lowest rate since February. By the end of the quarter, the rate had risen to 1.52%. As we have seen in the past, this move higher in interest rates meant a rotation back out of growth stocks and back into value stocks. We have been seeing this pattern since the summer of 2020. While we have not seen a typical market correction whereby, we get a 10%+ move lower in major market indices, it is important to point out that internally, sectors of the market have certainly seen corrections.

Q3 Indexes

During the quarter, the S&P 500 was able to eke out a gain of 0.2% despite September posting the worst monthly return since March of 2020. For the year, the index is higher by 13.5%. The Dow Jones was not as fortunate as the September drop led to a loss of -1.9% for the quarter. The Dow, however, does remain higher for the year with a 9.6% gain. The late move lower for the NASDAQ also led to a drop for the quarter as the NASDAQ was lower by -0.4%. For the year, the NASDAQ is higher by 10.8%.

Interest rates will continue to be the focus in 2021. Stock market rotations, corrections, rate hikes, and Federal Reserve decisions will be the buzz words in the coming quarter for the media.  We expect volatility to be elevated and macro-economic announcements to be center stage. Hopefully, the Fed can navigate this next hurdle for the markets.


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Chesapeake Financial Advisors is a fee-only financial planning, investment advisory and tax planning firm with offices in Towson, Columbia, and Frederick, Maryland.

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