As investors, it’s easy to lose sight of the path forward when uncertainty blocks our view.

Fall brings apple picking, pumpkins, cider doughnuts and corn mazes, a favorite of my daughters.  Imagine yourself in an elaborate corn maze this crisp fall season. If you could only soar above it, you would readily see your way through. But at eye-level, even the most determined explorer soon becomes disoriented. Usually, it’s a matter of perspective.

The same can be said for your investments. The market’s myriad financial twists and turns can leave you feeling anxious up close, like being lost in a maze, but can be much easier to navigate from a 360-degree view. With that analogy in mind, here’s a look at what happened from a few perspectives.

Market Perspectives: The Long and Short of It

Global markets have mostly been meandering through the ups and downs of this third quarter’s events. Corporate earnings, potential changes in tax / budget legislation, hawkish remarks by the Fed, inflationary concerns, government shutdown worries, China’s economic health situation (e.g. Evergrande), and overall global macroeconomic unknowns brought some volatility to the last few weeks of September. Domestic stocks (as measured by the S&P 500 Index) finished up the quarter slightly up at 0.6% while the other equity indices struggled. International emerging stocks (as measured by the MSCI Emerging Markets index) experienced the most volatility, ending down -8% for the quarter, compared to 1.0% for the year-to-date and 18.6% for a full year ending this quarter.

On the fixed income front, bonds were up for the quarter until the end of September when they gave back returns. Interest rates started to tick up as the Fed noted they will taper bond buybacks as early as this fall and raise rates in 2022.

With long-term average annual market returns closer to 7–8%, seeing such large gains across many asset classes over the past twelve months is incredible. The S&P 500 gained 30%, small cap stocks (Russell 2000) gained nearly 48%, and real estate (S&P Developed REIT) was up nearly 18%. These past 12 months really were about an accelerating economy coming out of the pandemic troughs, companies and economies reopening, and the advent of the vaccines.

Equities Indices Q3 2021 YTD 1 year 3 years 5 years 10 years
S&P 500 (U.S. Large Cap) 0.6%. 15.9% 30.0% 16.0% 16.9% 16.6%
Russell 2000 (U.S. Small Cap) -4.4% 12.4% 47.7% 10.6% 13.5% 14.6%
MSCI EAFE (International Developed) -0.4% 8.8% 26.3% 8.1% 9.3% 8.6%
MSCI EM Emerging Markets (International Emerging) -8.0% -1.0% 18.6% 9.0% 9.6% 6.5%
Fixed Income Indices
FTSE World Government Bond Hedged (Global Bonds) -0.0% -2.4% -2.1% 4.5% 2.6% 3.4%
Barclays U.S. Aggregate (U.S. Investment Grade Bonds) 0.1% -1.6% -0.9% 5.4% 2.9% 3.0%
Barclays Municipal Bond 5Y (4 – 6) (Municipal Bonds) 0.1% 0.3% 1.1% 3.9% 2.4% 2.5%
Barclays U.S. Corporate High Yield (U.S. High Yield) 0.9% 4.5% 11.3% 6.9% 6.5% 7.4%
Other Indices
S&P Developed REIT (Global Real Estate) 0.1% 17.9% 32.9% 8.7% 6.1% 10.1%

Data ending 9/30/2021 (not annualized if less than 1 year). Source: Zephyr Analytics and Morningstar. The returns shown are annualized returns, except for periods less than one year, for selected asset classes as represented by benchmark indices. Investors cannot invest directly in an index. Unmanaged indices do not reflect management fees or transaction costs. Past performance is no guarantee of future results.

What can we expect in the fourth quarter and beyond? As always, future unknowns—which, in aggregate, drive future returns—remain forever hidden around the next bend.

That said, none of the news working its way through the system represents a new breed of information. Elevated returns happen, and are great while they last. But we also already know we should prepare for the day the tides turn (usually abruptly), by maintaining a steadfast, globally diversified portfolio. Yes, we are mixing metaphors with twisting corn mazes and tides moving in and out to describe investments. However described, the point is we should always expect change.

Current Events in Historical Perspective

All too often, our short-term reactions to unfolding events distract us from the greater financial vision we know is out there, pointing toward our center of wealth.

The chart below illustrates long-term versus short-term perspectives. The red dots represent the market’s lowest point each year (as proxied by the S&P 500). As you can see, every year had its ups and downs. Most ended strong. Specifically, despite the average intra-year drops of 14.3%, annual returns were positive 31 out of 41 years—at least for investors who stayed put to capture those end returns.

S&P 500 intra-year declines vs calendar year returns chart

By my count, in 22 of the last 41 years, the S&P 500 experienced a peak-to-trough drop of 10% or more! That’s more than 50% of the time. Yet 75% of the time, the year was positive.

While headlines are deliberately crafted to shout, “Look at me!” the actual news almost always rings repetitive. To illustrate, let’s look back at each “1” year, from 1931 through today. Each of them (and probably any others we might choose) had their share of unsettling news reminiscent of current events.

  • 2021: Inflation, vaccinations, geopolitical concerns

  • 2011: U.S. treasuries downgraded, debt ceiling conflicts

  • 2001: 9/11 and a bursting tech bubble

  • 1991: A U.S. economic recession and Salomon Brothers treasury auction scandal

  • 1981: 10% inflation, with 10-year Treasuries peaking at 15.8%

  • 1971: The Vietnam War continues, while the U.S. dollar is devalued

  • 1961: The Berlin Wall was built and Bay of Pigs

  • 1951: A Cold War with the Soviet Union and conflicts in Korea

  • 1941: World War II is in full force

  • 1931: The Great Depression deepens; unemployment rises to 16%

Past events don’t grant us the power to predict specific outcomes this time around. But we can use them as valuable reference points for building your portfolio with the durability and flexibility it needs to withstand similar pressures moving forward.

A-Mazing Investing

We know the headlines you read can be hard to absorb without wondering whether, this time, it’s different; or how they might impact yourself, your family, your community, and your financial peace of mind. If you lose sight of your investment confidence, you may be tempted to start making random moves—any moves—to find your way through.

As a Modera client, please know you are not alone in this a-mazing, unnerving world. You have us to elevate your field of view. You have our experience, our objective independence, and our evidence-based approach to investing. Most of all, you have our appreciation for your personal financial goals.

What questions are top of mind for you at this time? Please let your Modera team know. This and every quarter, our job is to cut through the never-ending noise, which we refer to as “headline risk,” and help you stay focused on the unseen goals that lie at the center of your one life. How else can we help you with that?


George T. Padula, CFA®, CFP®
Chief Investment Officer

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