Investment Commentary, Holiday Party Save the Date, and More News From Summit

Return to Office Plan

We are excited to welcome back our staff and clients to our office effective July 1st.  Our normal office hours of 8:30 AM to 5:00 PM will resume.  In-person meetings of up to one hour in duration will be offered and we will continue to accommodate requests for online Zoom meetings.

Holiday Party – Save the Date!

Save the date for the 2021 Holiday Party scheduled for Thursday, December 2nd, 2021.  More details soon to follow!

Tax Filing Deadline

The tax filing deadline is extended from April 15, 2021, to May 17, 2021, due to late tax law changes as well as the lingering pandemic. For more information, please go to this link:

Investment Commentary

By Summit Investment Committee

Investors have experienced a disorienting 15 months with more high and low points than many entire decades contain.  On 3/23/2020 the S&P 500 Index traded at an intraday low of 2,191.96 – a drop of 35.3% from a high of 3,385.09 recorded less than 6 weeks prior on 2/13/2020.  This drop was followed by a warp speed recovery which has seen the S&P 500 Index rise to a closing value of 3,910.52 on 3/23/2021, an astounding 78.4% rise from the 3/23/2020 lows (and a still-impressive 15.6% gain from the 2/13/2020 high-water mark).  Looking beyond big US stocks, small companies and international stocks experienced even more-pronounced volatility with somewhat worse declines and generally steeper recoveries.

On the fixed income side of the world, during the steepest points of the decline we began to experience liquidity drying up for nearly all non-government debt instruments.  Even money market funds suffered disruptions as yields went to essentially zero for government money funds and began to bulge for municipal money markets.  Bond fund valuations trended downward as liquidity and economic fears had a greater impact on bond prices than falling interest rates.  Fortunately, these circumstances were rather short-lived and bond valuations shook off the liquidity and bankruptcy fears as the markets responded to fiscal and monetary stimulus.

We are now facing the possibility of inflation running ahead of expectations.  As of 12/31/2020 the US Money Supply measured by M2 had risen an unprecedented 24.9% year-over-year.  However the velocity of money was down 20.5% over that same time, muting inflation from the increased money supply.  The Fed has stated a willingness to allow the economy to run hot and to allow inflation to trend towards a long-term average of 2%+.  Given the low inflation of the past few years, this gives the Fed extensive leeway.  But markets are showing higher inflation expectations as evidenced by rising spreads in the 10-year Treasury rates minus 2-Year Treasury rates (going from 0.0% on 8/31/2019 to 1.48% on 3/23/2023 – with the current spread well above the historical average of 0.93%).  We most clearly see the rise in 10-year Treasury Rates in the recent increase in mortgage rates.  We have also seen a steepening in the Treasury Yield Curve, with 30-Year Rates now trading 0.71% higher than 10-Year rates – a wider gap than the historical 0.51% average.

The volatility of the past 15 months have been a reminder of a few basic investment tenets:  (1) There is no long-term equilibrium for investment markets – changes are always occurring.  And those changes tend to be sudden and quickly priced into market expectations.  Rather than fearing these uncertainties, we can use them to our advantage by rebalancing.   (2) Major events that impact markets tend to look obvious when viewed after the fact, but objectively such events were only one of many possible outcomes which could have happened.  (3) following an Investment Policy Statement with an appropriate risk level and which addresses liquidity needs at all times (and not just in a crisis) tends to provide better long-term results than market-timing efforts.

Economists have expectations that the US economy will grow at a real rate of around 6% this year, and stock analysts are expecting strong year-over-year earnings per share growth as well.  These expectations are priced into current market prices and bond yields.  We don’t know what the rest of 2021, and beyond,  holds for investors – but we will be following the discipline of our Investment Policy Statements to advise our clients, and to rationally address the opportunities and challenges which arise.

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