U.S. Versus International
The S&P 500, an index of large U.S. companies, posted a total return of 0.6% for the Third Quarter of 2021. S&P 500 performance was driven by strength in select stocks with large weights in the index. 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 Third Quarter of 2021 was -0.4%, totaling 8.8% year-to-date.
Large U.S. companies continue to dominate performance, as they have for many years. Nvidia and Google, in particular, have stellar returns so far in 2021. Both stocks are up over 50% since the beginning of the year. Both companies represent 5.7% of the S&P 500 as of September 30, 2021. The S&P 500 has become extremely top heavy. Index performance is driven largely by the select top 10 stocks in the index. This disparity is creating sharp performance contrasts versus other indices that are not as weighted heavily in these large companies.
The top performing international countries for the third quarter included Russia and India. Russian stocks continue to benefit from rising oil prices. Brazil and China lagged other international indices for the quarter. COVID economic concerns continue to hurt these areas of the world. Evergrande, a Chinese real estate giant, rocked markets in the third quarter as concerns regarding debt issues materialized.
U.S. Sectors
Top performing U.S. S&P 500 sectors as reported by JPMorgan Investment Group for the third quarter of 2021 by total return include Financials (2.7%), Utilities (1.8%) and Communication Services (1.6%). Laggards for the third quarter include Materials (-3.5%), Energy (-1.7%) and Industrials (-1.2%).
Higher dividend paying sectors led performance in the third quarter. Threats of increasing interest rates cooled during the quarter as some slowing economic activity indicated a delay in tightening policy by the Federal Reserve. Slower economic activity and the threat of higher Covid rates from the Delta variant slowed more cyclical sectors that benefit from greater economic activity.
U.S. bonds remained steady in the third quarter, but prices remain lower than where they started the year. The Aggregate Bond Index, a diversified index of bond holdings, rose 0.1% in the quarter but remains down 1.6% in total year-to-date. Inflation remains a concern but the immediate threat was lessened by words from the Federal Reserve and less spectacular job reports.