Market Commentary

The stock market’s third quarter performance reminds us of the opening lines of A Tale of Two Cities.  The first several weeks were “the best of times,” as stocks started the quarter on an up-note and appreciated meaningfully.  The catalyst was the Fed’s late-June meeting, after which investors seemed to think the toughest and most aggressive part of the Fed’s fight against inflation was over.  This optimistic sentiment gave way to “the worst of times” as investors turned pessimistic midway through the quarter.  Inflation readings continued to be elevated and Fed Governors seemed to back away from achieving an economic soft-landing. 

In addition to springing forward an hour for daylight saving time, it seems like the clock has also recently been turned all the way back to the 1970s in some unfortunate ways.  Rampant inflation, an oil supply shock, and Russian military expansionism have all once again reared their ugly heads, injecting significant volatility into global markets and leading to the first correction in the S&P 500 since the early days of the pandemic.

The many students who have recently returned to school can only hope for grades like the stock market has posted for most of the year.  Over the past several months, the market has successfully shrugged off a number of concerns, including extended valuations, rising inflation, and a slowdown in the economic recovery caused by the Delta variant of Covid-19.  The result has been an unusually steady climb higher by the market for most of the year with just a few minor blips along the way.  In fact, the S&P 500 has doubled since bottoming in March of 2020 without a single 10% correction during that span.  A rise in interest rates represents the latest challenge for stocks and has added some volatility to the market in recent days.  The result has been the first 5% pullback in the market since just before the election last year, ending what had been the second-longest stretch without such a decline over the past 25 years and the 8th longest streak since 1930.  There has also been some choppiness below the market’s surface throughout the year, with bigger fluctuations among various sectors of the market that have come in and out of favor.  However, the market as a whole has been pretty resilient, with the S&P 500 remaining just a handful of percentage points off its high.