Quarterly Market Review: Q3 2021


A Relatively Quiet Quarter


While the delta variant of the coronavirus threatened an economic slowdown throughout the quarter, the third quarter of 2021 delivered fairly flat U.S. and international stock market returns with a downturn in emerging markets resulting from debt concerns and regulatory changes in China. On the bond side, inflation is something we continue to keep an eye on, while interest rates drifted slightly higher during the quarter.

Economic Indicators at a Glance

Below is a snapshot of key top-line economic indicators. Notably, GDP is booming, unemployment has been dropping rapidly, and yet consumer confidence is dropping. Two likely contributors to this are the rise of inflation and scarcity of product due to global supply chain issues.

Data source: Trading Economics. 2021.

Market Summary Third Quarter 2021 Index Returns


All was relatively flat for the Q3 (with the exception of emerging market stocks, which we'll talk more about). Global stocks and real estate were down slightly, with bonds posting minimal gains.

U.S. Stocks

Third Quarter 2021 Index Returns


The US equity market was nearly flat for the third quarter, but remained up 14% year to date. The graph below shows S&P 500 daily returns since last October, with muted volatility in Q3 and fewer big up and down days compared with the previous year. The S&P 500 moved more than 2% only on one day, and it moved more than 1% on only eight days over the quarter.

US Stocks outperformed international markets. Large cap growth stocks outperformed value and small stocks.


International Stocks & Emerging Market Stocks

Third Quarter 2021 Index Returns


Developed international markets declined less than 1% for the quarter, but significantly outperformed emerging markets.


Emerging markets posted negative returns for the quarter, underperforming the US and non-US developed equity markets. Much of the international attention in the third quarter was on China. The Chinese government cracked down on internet companies as part of its "Common Prosperity" program to address the growing wealth gap. News broke that a mega Chinese real estate developer may default on $300B in debt led to a sharp drop in Chinese stocks. While these factors added some volatility to emerging markets (China accounts for about one-third of many emerging market funds), volatility in the index was still well below 2020 levels.

Fixed Income

Third Quarter 2021 Index Returns

Interest rates in the US Treasury fixed income market generally increased during the third quarter. The yield on the 5-year Treasury note rose 12 basis points (bps), ending at 1.00%. The yield on the 10-year Treasury note increased 8 bps to 1.54%. The 30-year Treasury Bond yield rose 1 bp to finish at 2.05%.

There was a brief rally in bond prices in July due to concerns about the economic impact of the delta variant, which pushed the 10-year Treasury yield to its lowest level since February. In September, the Federal Reserve outlined plans to start raising interest rates earlier than expected, lifting yields slightly.


Only high-yield bonds and Treasury Inflation-Protected Securities (TIPS) are positive on the year. Most bond sectors are on track for a negative year.


Government bond yields in the global developed markets generally increased for the quarter. Short- and intermediate-term interest rates were negative in Japan and Germany.

This report was prepared by Gregory Saliba.

Gregory Saliba

President, Taurus Capital Management

saliba@tauruscap.com

(503) 756-2972

  • 20+ years in Corporate Finance, Debt Capital Markets, and Investment Management

  • 2010 Oregon Ethics in Business Award Recipient

  • Public Speaker on Risk, Behavioral Finance and Ethics

  • Finance Faculty Member (12+ years)

  • Willamette University, Atkinson Graduate School of Management

  • Portland State University, School of Business Administration

  • Extensive Community Involvement


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