Investment Review for Second Quarter 2021

by John Gullo, MBA, CFA, CFP®, CIMA® Jul 19, 2021 Financial Planning, Investment Consulting


A great first half.

At the midway point of 2021, risky asset returns have been nothing short of fantastic for investors. In fact, returns were positive for all risky asset classes for both the first quarter and second quarter of this year. In total, global stocks (as a whole) have appreciated 12.3% in just six months!

Major asset class returns.

  Q2 2021 YTD
Core Bonds – Taxable 1.8% -1.4%
Core Bonds – Municipal 1.1% 0.5%
Global Stocks (as a whole) 7.4% 12.3%
U.S. Large Stocks 8.5% 15.3%
U.S. Mid Stocks 3.6% 17.6%
U.S. Small Stocks 4.5% 23.6%
Foreign Developed Stocks 5.2% 8.8%
Emerging Market Stocks 5.0% 7.4%
Commodities 13.2% 21.0%
Real Estate 10.2% 18.7%


Economic activity. 

When consumers are feeling good about their jobs as well as their personal finances, they tend to spend money. That is exactly what has happened in 2021. Currently, retail sales are at a healthy level and have remained above pre-pandemic levels for the past several months. Manufacturers’ new orders are increasing and are also above pre-pandemic levels.

Single-family housing starts, which are recorded when construction begins on the footings or foundation of a new home, are higher than they were a year ago, but are fluctuating. While there are many contributing factors to this, including both material and labor shortages, there has been no shortage of housing demand.


Consumer prices have risen 5.4% over the past 12 months. Many economists will argue that move is overstated, due to a poor comparable from a year ago (when COVID was in full force and much of the economy was in a state of lockdown). To help normalize the data, we can simply expand the time frame and look at price changes over 24 months.

From July 2019 through June 2021, inflation averaged 3.0% per year.   As such, we can comfortably say that prices have more than recovered from the COVID recession. Going forward, however, if price increases continue at this level it will no longer be a sign of a recovering economy, but a sign of an overheating economy due to excessive stimulus.

Help wanted.  

While the current unemployment rate is high at 5.9%, there is an abundance of help wanted signs and advertisements posted throughout the country. A quick web search for nearby entry-level positions shows desperate companies offering hourly rates well above the minimum wage. In addition, companies are offering added perks such as free food, potential tuition reimbursement, and signing bonuses to help attract applicants. In fact, recent economic data revealed that job openings in the United States reached an all-time high of 9.2 million positions last month. Great for job seekers, but terrible for business owners, many of which are in dire need of employees.

Endless supply of money.   

In all but four of the past 60 years, the federal government spent more than it took in. Lately, borrowing has reached a new extreme. In calendar year 2020, and thus far in 2021, the federal government has been borrowing more than 45₵ for every dollar of spending.

Despite what a few politicians may promise, there is not an endless supply of money for the government to borrow. Over the past few years, some creative programs by the Federal Reserve have made it easier for the federal government to accumulate debt and service debt. With $28.5 trillion of federal debt and climbing, however, some are concerned that the current situation may be nothing more than a house of cards that is close to its limits.

Asset bubbles. 

Two characteristics can be used to identify an asset bubble:

  • An investor must make implausibly optimistic assumptions to justify the current price mathematically.
  • The marginal buyer (or the person willing to pay the most) disregards valuation all together, presumably buying based on a good story.

Without question bubbles exist in meme stocks (such as GameStop and AMC Entertainment), cryptocurrencies such as Dogecoin, and within the IPO market where it is possible for a Special Purpose Acquisition Company (or SPAC) to raise capital with no existing business operations. In addition, there are likely excessive prices in areas of the technology sector as well as the housing market.

As such, it may be wise for investors to be thoughtfully diversified into some of the less frothy areas of the investment landscape, and utilize hedged strategies for a portion of their portfolio to limit downside risk.


This publication contains general information that is not suitable for everyone. All material presented is compiled from sources believed to be reliable. Accuracy, however, cannot be guaranteed. Further, the information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this publication will come to pass. Past performance may not be indicative of future results. All investments contain risk and may lose value. © January 2021 JSG