Market Commentaries

  • Last Week’s Markets in Review: The Winners and Losers of the 1st Half of 2021


    Global equity markets finished higher for the week. In the U.S., the S&P 500 Index (S&P 500) reached record highs and closed the week at a level of 4,352, representing a gain of 1.71%, while the Russell Midcap Index moved 0.20 % higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned -1.18% over the week. International equity performance was negative as developed, and emerging markets returned -1.09% and -1.63%, respectively. Finally, the 10-year U.S. Treasury yield ticked lower, closing the week at 1.44%.

    Through the first half of 2021, investors have captured exceptional returns in various areas of the market as the global economy continued its recovery from the COVID-19 pandemic. As we enter into the second half of the year, we thought it appropriate to revisit some of our original Top 10 Investment Themes for 2021 and see who the winners and losers have been during the first six months of the year.

    One of the primary rotations that we have continued to highlight throughout the year has been the shift from growth to value. Previously, we defined value-oriented stocks as those having higher relative dividend yields, low price to book ratios, and low price to earnings ratios. Value stocks have historically outperformed during periods of accelerating economic growth, a strengthening dollar, and rising inflation and interest rates. Thus far this year, history has repeated as the economy has been firing back on all cylinders, and value has outperformed growth by over 2.5% year to date as measured by the Russell 1000 growth and value indexes, which can be seen in the below chart from Bloomberg. With revised consensus GDP forecasts at 6.6% for 2021, we still believe that the value trade has room to run as the global economy continues its post-pandemic recovery.

    Another theme mentioned at the beginning of the year was smaller cap companies being in a position to outperform larger-cap companies. The prices of smaller cap companies typically tend to be more volatile than larger companies for a variety of reasons. As a result, during the first quarter of 2020, we saw the Russell 2000 index, a widely recognized barometer of the small-cap stocks, fall by 30.61%, while the S&P 500 index, a widely recognized barometer of large-cap stocks, drop by 19.6%. However, the remaining three quarters of 2020 saw a record-setting recovery to end the year, culminating with the smaller-cap Russell 2000 index outperforming the larger-cap S&P 500 Index with total returns of 19.93% and 18.39%, respectively. As the U.S. economy has continued to recover in 2021, so have small-cap equities as they have outperformed the S&P 500 and DJIA by 0.55% and 2.6%, respectively, year to date. Even with a more hawkish Federal Reserve, we anticipate interest rates remaining at historic lows through the end of 2022. The combination of low interest rates continued economic recovery, and more government spending should allow small caps to continue their outperformance on a relative basis.

    The final investment theme that we highlighted at the start of 2021was the likely return of international equities to prominence. We have, for some time, recognized the potential benefits of adding international stocks to a globally diversified growth portfolio as their relatively low correlation to U.S. equities ultimately helps to reduce the overall risk of an equity portfolio. Further, heading into 2021, we believed that attractive relative valuations, the anticipated rollout of COVID-19 vaccines, and near 0% interest rates would help provide upside support to international equities with an even stronger emphasis on the positive effect on emerging markets. For the first half of the year, while U.S. equities have outperformed international equities, international developed markets have returned an impressive 9.68% while international emerging market stocks have produced a solid return of 6.11%, both already surpassing their ten year annualized averages of 5.89% and 4.28%, respectively as measured by the MSCI EAFE and MSCI EM indices.

    As we enter the second half of 2021, we believe it is an opportune time for investors to reassess their current portfolio strategies and encourage them to work with experienced financial professionals to help build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and tolerance for risk.

    We hope that you enjoyed the long holiday weekend, and best wishes for the week ahead!

    Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 7/2/21. Rates and Economic Calendar Data from Bloomberg as of 7/2/21. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. Sector performance is measured using the GICS methodology.

    Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.

    Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.

    Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

    Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

    Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than the original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


    MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

    MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

    Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

    ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

    Investors cannot directly purchase any index.

    LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

    The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

    The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

    DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.

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