Market Update

The following commentary provided by Santander Investment Services' investment thought leadership partner Brinker Capital Investments (formerly CLS Investments) summarizes prior financial market activity and uses data obtained from public sources.

For a more in-depth analysis of the latest political, economic, and market news as well as the bank's insights into the next quarter, read Santander Investment Services’ Global Market Outlook.

A look back...

Muscle flex: It was a good three months for investors - as most asset classes delivered positive returns in the second quarter. For stocks, corporate earnings continued to grow at a rapid pace as the broad economy recovered. This very strong corporate earnings growth, combined with GDP growth that could reach 7% as the economy has reopened, have helped contribute to the S&P 500 Index's year to date gain of just over 15% and over 8% for the recent quarter.

Sigh of relief: The retreat in long-term interest rates was a sigh of relief for fixed income investors in the second quarter. Following losses to start the year, the Bloomberg Barclays US Aggregate Bond Index rose about 2%. The 10-year Treasury yield declined 25 basis points, settling at 1.45% yield.

Challenges remain: Despite a strong Q2 for the economy and risk assets, challenges and uncertainties persist: supply chains are disrupted, input costs have surged, taxes could be going higher, millions of Americans remain out of the labor market, and vaccination distribution efforts are not yet complete.

Data are as of 6/30/21 and all sources are Morningstar.

Something to Think About...

Through traffic, keep left: Inflation was top of mind for most investors in the second quarter. Headline CPI jumped 5% on an annual basis in May, the largest increase in several years. While the number may appear quite high, it is important to recall the context of depressed prices from a year ago. Disrupted supply chains and strong consumer demand have been key drivers of higher prices in recent months. Volatile price segments, such as commodities have also been a factor, but are unlikely to persist over the long term, as high prices historically tend to eventually stifle demand. Core inflation also rose but is within the trend witnessed over the past decade. The Federal Reserve has communicated that the spike in inflation is expected to be transitory as we progress further into the economic recovery. For now, we agree with the Fed.

That bridge isn't going to fix itself: Infrastructure is a priority for the Biden Administration, and markets seemed to applaud a bipartisan agreement on a $1.2 trillion infrastructure package. While Wall Street would likely welcome the additional fiscal support for the economy, there are countervailing concerns among many investors around proposed increases in tax rates on income, capital gains, and corporate profits. Historically, both stocks and bonds have underperformed in the year following a tax hike.

Not so fast: Growth stocks rebounded significantly in the second quarter, outpacing value stocks: The Russell 3000 Growth Index outpaced the Russell 3000 Value Index by over 6% during the quarter. Traditional value sectors such as energy, materials, and financials cooled off after valuations surged and as bond yields moved lower. Alternatively, technology stocks that were adversely impacted by higher rates in the first quarter, recovered meaningfully as investors preferred growth companies and yields on bonds retreated for the quarter.

Data are as of 6/30/21 and all sources are Morningstar.

Present Positioning... 

Riding the recovery: We remain optimistic on the economy and risk assets as we enter the third quarter. Monetary policy remains supportive, consumer balance sheets are healthy, and corporate profits continue to exceed expectations. Additionally, improvements in the labor market, supply chains, and global vaccination rates are likely positive catalysts going forward. Inflation, valuations, and tax policy are potential headwinds; however, we believe the positives outweigh the negatives. Within global equities, we are overweight to mid/small caps and emerging markets, which may all do well as global growth accelerates.

Importance of bonds: Despite our optimism, diversification is a hallmark of our portfolios, and as always bonds have a meaningful role to play in portfolio construction. Here, our positioning emphasizes an overweight to U.S. Treasury Inflation-Protected Securities (TIPS) and to short-duration instruments within traditional fixed income. Both allocations have been positive contributors to relative performance year-to-date. And while yields are low, it is worth remembering that traditional fixed income remains the only true hedge to systemic drawdowns.

Once more on growth and value: As we head into the second half of the year, we are maintaining our small tilt to value equities. The strength and durability of the economic expansion could determine which style wins out over the long term, with value stocks potentially expected to out perform if the pace of the recovery remains strong and growth stocks potentially expected to lead when in a more muted economic environment.

Data are as of 6/30/21 and all sources are Morningstar.

Thank You
As always, a sincere thank you for reading. If you have any questions or feedback, please reach out to your Santander Investment Services Financial Consultant.

This material is authored by Brinker Capital Investments and is being presented by Santander Investment Services. The information contained in this material should not be construed as an endorsement or adoption of any kind by Santander Investment Services or Santander Securities LLC, who are not affiliated with Brinker Capital Investments or Orion Advisor Solutions. The views expressed herein are exclusively those of Brinker Capital Investments, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of Brinker Capital Investments. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed here and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security's price or value may rise or fall.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The Russell 3000 Index is a market-capitalization-weighted equity index maintained by FTSE Russell that provides exposure to the entire U.S. stock market. The index tracks the performance of the 3,000 largest U.S.-traded stocks which represent about 98% of all U.S. incorporated equity securities.

The Barclay’s Capital U.S. Aggregate Bond® Index measures the performance of the total United States investment-grade bond market. All indices are unmanaged and investors cannot invest directly into an index.

Past performance is not a guide to future performance.


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