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Market Commentary

November 2021

Civista Wealth Management Logo
Frank P. Sudal, CFP®, CFA
Trust Investment Management

Total Returns (%) as of October 31, 2021

Fixed Income YTD 1 Mo 3 Mo 1 Yr 3 Yrs 5 Yrs 10 Yrs
U.S Aggregate

-1.58

-0.03

-1.08

-0.48

5.63

3.10

3.00

High Yield

4.36

-0.17

0.33

10.53

7.43

6.40

6.78

Global

-8.49

-0.69

-4.41

-4.32

3.15

1.56

0.32

Equities
     


U.S. Large Cap

24.04

7.01

5.13

42.91

21.48

18.93

16.21

U.S. Small Cap

17.19

4.25

3.44

50.80

16.47

15.52

13.50

Developed International

11.01

2.46

1.24

34.18

11.54

9.79

7.37

Emerging Markets

-0.27

0.99

-0.49

16.96

12.30

9.39

4.88

Source: Morningstar.  U.S. Aggregate - BBgBarc US Agg Bond.  High Yield - BBgBarc US Corporate High Yield.  Global - FTSE WGBI NonUSD.  U.S. Large Cap - S&P 500.  U.S. Small Cap - Russell 2000.  Developed International - MSCI EAFE.  Emerging Markets - MSCI EM.
 

Equity investors did not have to dress up for Halloween in order to collect a treat as the S&P 500 recorded another record high in October. U.S. large caps surged 7.01%, followed by U.S. small caps 4.25% increase.  Developed international and emerging markets also gained 2.46% and 0.99%, respectively.  Concerns over inflation, supply chain disruptions, and labor shortages were more than offset by a remarkably strong start to the earnings season. Fixed income performance suffered, as investors priced in the winding down of bond purchases (QE) by the Federal Reserve, causing yields to rise (bond prices move inversely to yields).

Real gross domestic product (GDP) increased at an annual rate of 2.0% in the third quarter of 2021, according to the "advance" estimate released by the Bureau of Economic Analysis (second quarter, real GDP increased 6.7%). Slower growth in third quarter GDP was primarily hampered by the delays in reopening parts of the economy due to the increase of COVID-19 cases. Now that the COVID-19 cases have declined, the next challenge will be how to efficiently resolve the global supply chain disruptions and associated “transitory” inflation.

The Federal Open Market Committee (FOMC) met early in November, and, as expected, left the federal funds rate unchanged (0.00%-0.25%). However, the Fed will begin tapering its bond purchases later this month.  The FOMC commented that “The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation.  Risks to the economic outlook remain.” 

Another year of strong market performance is anticipated and it appears that capital gain distributions will be above average for 2021. We typically harvest losses in the taxable accounts we manage to help lower the tax bite; however, most positions have prosperously increased in value. We recommend that clients consult with their accountant before the end of the year to discuss strategies that can help minimize taxes.  Harvesting losses for other assets, tax loss carryforwards, bunching itemized deductions (e.g., charitable donations), and boosting retirement and HSA contributions may be some of the strategies worthy of consideration. The mantra “don’t let the tax tail wag the investment dog” seems somewhat relevant. Staying invested in the market, in a suitable allocation, has allowed many investors to participate in one of the most robust bull markets in modern history. While market volatility is expected to continue, it is important to take a long-term view.