September 2021 Newsletter to Clients

Enjoy this month’s edition that features a review of the stock market so far in 2021 plus some market strategists’ predictions for the future.

What a year – another one – it has been for U.S. stocks. The S&P 500 is up over 20% so far this year with seven straight months of gains to brag about. For perspective, the Price/Earnings ratio of that index is over 21. The P/E ratio over the last 30 years has averaged 16. That means an investor buying the S&P 500 index today is paying $21 for each $1 of earnings from the companies within that index, as opposed to paying just $16 for that same $1 over the previous 30 years, on average. The pertinent question is, as always, where is the stock market headed?

For that question, we turn to Barron’s who surveyed six market strategists for their predictions of U.S. stock and bond market performance for the rest of 2021 and for 2022. The six were Christopher Harvey of Wells Fargo, Saira Malik of Nuveen, Lori Calvasina of RBC Capital Markets, Mike Wilson of Morgan Stanley, Michael Fredericks of Blackrock Multi-Asset Strategies and Gaurav Mallik of State Street Global Advisors.

Stocks: The S&P 500 currently sits at 4468, as of the market’s close on Monday, September 13. The predictions of the six surveyed average a year-end value of 4585. So, not much more movement over the last 3 ½ months of the year. For 2022, they expect the index will rise another 6% and end the year near 4800. 6% would be a quite decent year historically but well down from this year and the previous two. We should note also that it is not at all unusual for stocks to tumble 10% or more during the year and still finish up at the end. It’s also not at all unusual for stock market “experts” to be wrong.

Bonds: We typically use the 10-year U.S. Treasury note as the proxy for bond yields, similar to using the S&P 500 as proxy for the U.S. stock market. Currently the yield on the 10-year is 1.33% as of Monday, September 13. This means the 10-year pays 1.35% in interest based on the bond’s current price.

Barron’s six strategists see bond yields ending 2021 at around 1.65%. They expect bond yields to hit 2.0% by the end of 2022.

Bond yields are an important measure for three reasons: 1) They help tell us the value of a bond and how much potential earnings there can be from investing in them; 2) A bond yield can be compared to the assumed earnings from owning stocks. Low bond yields, as we’ve seen for awhile now, often help lure investors to stocks in search of greater earnings; 3) Bond yields can often be an indicator of how much inflation investors expect in the future. Lower yields – like now – may indicate an expectation of lower inflation.

Like predicting which teams will be in the NCAA Final Four this coming year, stock and bond market predicting can be perilous. Once again – this is why we concentrate so heavily on diversifying your portfolios in ways appropriate for your individual circumstances.

Thank you for your continuing confidence.