U.S. Versus International
The S&P 500, an index of large U.S. companies, posted a total return of 8.2% for the Second Quarter of 2021. This performance almost matched the first quarter for a year-to-date return of 14.4%. U.S. stocks outperformed international again for the quarter as measured by the iShares MSCI EAFE ETF, a representation of international stocks outside the U.S. EAFE total return for the Second Quarter of 2021 was 5.4%, totaling 9.6% year-to-date.
U.S. stocks have consistently outperformed international stocks for the past 13.5 years. Outperformance has exceeded 200% over this time. The significant growth in U.S. companies, which has been dominated by technology, has eclipsed foreign markets. A predominant increase in the U.S. dollar has also contributed to outperformance of U.S. stocks versus international. When the U.S. dollar increases, the value of the international stocks that have been purchased with U.S. dollars but are primarily valued in foreign currencies automatically falls.
The top performing international countries for the second quarter included Brazil, Russia, Mexico and Canada. These countries all benefit from stronger oil prices. Oil and natural gas prices continued to rise, up 51% and 42% year-to-date respectively. All of the top performing countries have economies that are greatly tied to oil and natural gas. Hong Kong and China, two heavy consumers of oil and natural gas, have lagged other markets.
U.S. Sectors
Top performing U.S. S&P 500 sectors as reported by Bespoke Investment Group for the second quarter of 2021 by total return include Technology (11.4%), Energy (10.9%) and Communication Services (10.6%). Laggards for the second quarter include Utilities (-0.5%), Consumer Staples (3.1%) and Industrials (4.3%).
A major reversal in sector stock performance occurred in the second quarter. Growth stocks in Technology and Communication Services recovered nicely while more value-oriented Utilities and Consumer Staples lagged. Inflation remained a concern with the continued rise in energy prices due to greater demand as individuals began to travel again.
U.S. bonds recovered some in the second quarter, but prices remain lower than where they started the year. The Aggregate Bond Index, a diversified index of bond holdings, rose 1.8% in the quarter but remains down 1.7% in total year-to-date. Inflation remains a concern but the immediate threat was lessened by words from the Federal Reserve.
Performance Source: Koyfin
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