Cogentblue’s evidence-based investing portfolios are strategically invested with a focus on long-term performance objectives. Portfolio allocations and investments are not adjusted in response to market news or economic events; however, we evaluate and report on market and economic conditions to provide our investors with perspective and to put portfolio performance in proper context.
For the quarter, U.S. stocks (as measured by the Russell 3000 Index) lost 0.1%, and non-U.S. developed market stocks (as measured by the MSCI World Ex U.S.) lost 0.7%. Emerging market stocks (as measured by the MSCI Emerging Markets Index) lost 7.4%.
The U.S. Dollar Index, a measure of the value of the United States dollar relative to a basket of foreign currencies, increased during the quarter—the U.S. dollar increased by 4.8% compared to foreign currencies. Over the past 12 months, the U.S. dollar increased by 0.4%. The increase in the dollar is a headwind to non-U.S. investments held by U.S. investors for the last 12 months.
U.S. interest rates remained unchanged during the quarter as the Fed continues to maintain a target range of 0.0% to 0.25% for the Fed Funds rate.
U.S. Economic Review
Continuing the trend of economic expansion from the previous quarter, the final reading for second quarter 2021 GDP showed an annualized increase in economic growth of 6.7%. The unemployment rate finished the quarter at 4.8%, which is the first time unemployment has been under 5% since the pandemic began. Domestic inflation showed a reading of 3.6% in August 2021 as the Fed’s preferred gauge of overall inflation, the core Personal Consumption Expenditures (PCE) index, remained above the Fed’s long-term target average of 2.0%.
Financial Markets Review
Domestically, large-cap stocks and REIT stocks posted positive performance for the quarter while only small-cap stocks were positive internationally. Value stocks receded globally. International stock returns were also impacted during the quarter by the strengthening U.S. dollar. During the quarter, U.S REITs were the best performing and emerging market value stocks were the worst performing. U.S. and global bonds were each up slightly during the quarter
In the U.S., large-cap stocks outperformed small-cap stocks in all style categories. Growth stocks outperformed value stocks in all size categories except small-cap stocks. Among the nine style boxes, large-cap growth stocks performed the best and small-cap growth stocks experienced the largest decline during the quarter.
In developed international markets, small-cap stocks outperformed large-cap stocks in all style categories for the quarter. Growth stocks outperformed value stocks in all size categories with the exception of mid-cap stocks. Among the nine style boxes, international small-cap growth stocks performed the best and international large-cap value stocks experienced the largest decline during the quarter
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Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged to USD]). S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2020, all rights reserved. Bloomberg Barclays data provided by Bloomberg. The views in this material were those of the Advisor at the time of writing this report and may reflect the views of WCAP. These views are intended to assist clients and do not constitute investment advice.