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Q3 2021

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Key Takeaways, Third Quarter 2021

By Ralph Goldsticker, CFA | Oct 2021

The pandemic-induced recession’s rebound appears to be behind us. A spike in inflation and economic worries are tempering recent quarters’ optimism. Growth is expected to slow but remain above trend. Markets appear to view that the spike in inflation will be transitory. Both interest rates on Treasuries and break-even inflation rates saw little change. Despite the spike in inflation, the Federal Reserve and other central banks remain accommodative. However, guidance around tapering the Fed’s bond-buying and for potential future rate hikes are increasingly hawkish.



Global stocks advanced in the first two months of the quarter. In September, inflation and supply chain fears reversed those gains.

  • The broad US stock market lost 0.1%. It is still up 15% YTD, and 32% over the trailing 12 months.

  • A resurgence of fears about the economy resulted in growth stocks outperforming value by 2%. US growth stocks returned 1.2%, versus a loss of 0.8% for value.

  • Large caps outperformed small caps, +0.6% vs. -4.4%.

  • The economic fears weighed more heavily on non-US stocks. Developed international stocks lost 0.4% and emerging markets dropped 8.1%.

Fixed Income

Bonds rose slightly as their current yields were offset by small increases in Treasury rates and spreads. 

  • Interest rates on intermediate maturity Treasuries were marginally higher. The 5-year rate rose 11 bps, the 10-year 7 bps. 20- and 30-year rates rose 2 bps.

  • Real interest rates continue to be markedly negative:
    -1.5% for 5-year TIPS, and -0.9% for 10-year TIPS.

  • The broad US aggregate bond index remained negative, down -1.6% YTD, -0.9% over 12 months.

  • Economic concerns caused spreads to widen. Investment Grade widened by 3 bps and High Yield widened by 21 bps. They are still 10 and 47 bps narrower than their December 2019 levels.

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