Market Report – Summer 2021

The stock market moved generally higher during the second quarter, although we saw a fairly sharp diversion between the results of domestic large company stocks and smaller company stocks. For the quarter, large US stocks were up 8.5%, small US stocks were up 4.3%, and foreign stocks were up 5.2%. Bonds rebounded from first quarter losses, rising 1.8% for the second quarter.

The US economy continues to revive after being ravaged by the Covid-19 pandemic. This economic recovery is unlike others in recent history in that many Americans have expanded savings accounts (built up during pandemic lockdowns), a number of businesses and industries are eager to re-hire, and substantial governmental policy and stimulus support are in place. When the pandemic sent the US economy into a free fall last spring, analysts worried it would take years for businesses and the labor market to recover. The overall economy is rebounding at a surprising pace and is now expected to surpass pre-pandemic levels this quarter. At the same time, unemployment numbers remain elevated, and less fortunate Americans continue to struggle getting their lives and finances back on track.

The Fed cut interest rates to near-zero in March 2019 as part of its effort to avoid economic collapse in the US. Many economists thought rates would remain right about there until perhaps 2023, or even later if recovery came slowly––but rapidly improving conditions are sparking expectations for a 2022 Fed rate increase. This decision would be significant in terms of both economic impact and messaging to the markets, since Fed rate increases are recognized as a sign of economic prosperity.

The rapid pace of the recovery thus far is having the unexpected effect of creating shortages of equipment, raw materials, and labor––all of which are stoking inflation concerns in the US. Some inflation is helpful to an economy, but too much can snuff out a recovery. Runaway inflation––as the US experienced in the 1970s––can prove difficult to harness and lead to overheating of the economy, followed by an unwelcome recession. Many economists expect the jump in inflation to be temporary, though others worry that it could persist and create longer term economic risks.

In June, Treasury Secretary Janet Yellen addressed the Senate Finance Committee with the message that the US economy needs ambitious fiscal policy to help unwind the factors that perpetuate racial inequality, fuel climate change, and keep prosperity out of reach for millions of Americans. She defended the Biden administration’s 2022 budget proposal, which calls for policies such as paid family leave, infrastructure investment, emissions reductions, and more investment in affordable housing and higher education. She added that the private sector hasn’t made enough investment in support of these objectives to reverse long-term, structural economic challenges such as wage inequality, according to the Wall Street Journal. These remarks could be interpreted as a clear call for increased and targeted socially responsible investment in the US.

For climate-minded investors, May 26, 2021, was a watershed day for many reasons. Exxon Mobile shareholders sent ripples of shock through the energy industry when they voted out three board members and replaced them with climate-focused newcomers. Chevron shareholders approved a landmark resolution requiring carbon emissions to be audited, just like financials, and for the company to account for emissions caused by burning the oil it sells. These are each noteworthy examples of the power of responsible shareholder activism. Elsewhere, heavily coal reliant Indonesia announced that it would build no new coal-fired power plants. And finally, Ford Motors, maker of the enormously popular F-150 pickup trucks, announced that an all-electric version of the vehicle will be available in 2022 with the tagline, “Say goodbye to gas.” Each of these events could potentially help transform entire industries.

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