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Economic Update — Reviewing Q3 2021

For most of Q3, it appeared the bull market would continue charging, but equities stalled out in September.

In the third quarter of 2021, the NASDAQ and S&P 500 both rose by as much as 5% but finished around flat, while the Dow lost 1.5%. The last day of Q3 marked the first time in 2021 where all three indices were 4.75% or more below their all-time highs.

Dow, NASDAQ, S&P 500 performance for Q3 2021

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The recent drawdowns have shown volatility can strike at any moment, which is why keeping tabs on the latest trends and economic data—like rising inflation you may have recently seen dominating headlines—is crucial to successfully managing investment portfolios and educating clients.

Below are a few takeaways from the YCharts Q3 2021 Economic Update. The deck, published quarterly, arms advisors and investors with key insights from the previous quarter to help you make smarter investment decisions going forward. Furthermore, the deck is easily customizable with your own firm branding to be leveraged in client communications.

For a full review of the quarter, be sure to join us Thursday, November 11th as we break down the major economic and market trends from Q3 2021, including how to white-label the Economic Summary Deck as your own for presenting to clients and prospects.

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Asset Class Performance

Six of the 11 asset classes in the table below posted positive gains in Q3. Commodities was Q3’s best performer, rising 5.2%. Increased demand and high inflation throughout 2021 have helped commodities secure that spot as the top-performing asset class in each lookback period from one month to one year ago.

Q3 2021 Asset Class Returns Table

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Looking at the table’s third column, the other winners in Q3 were larger, US-based asset classes. US Growth added 1.2%, US Real Estate increased by 0.7%, and the fixed income instruments of US Treasuries and Aggregate Bonds tacked on a marginal 0.1% each.

As for the laggards, World exUSA slipped by 0.6% while Emerging Markets lost 8%, making it the worst-performing asset class in Q3. Much of the MSCI Emerging Markets index’s downturn can be attributed to its 34% weight in China, whose MSCI China index tumbled 18.6% in Q3. Sandwiched in between these two global indices were US Value and US Small Caps, which slid 0.8% and 4.4% respectively in Q3.

 

What’s Going On with Labor Markets?

It seems that no matter where you look, businesses everywhere are displaying “Help Wanted” signs in their windows. Despite US Job Openings nearing all-time highs, the US Labor Force Participation Rate is still below its pre-pandemic levels, and five percentage points below its relative high in the early 2000s.

US Labor Force Participation Rate vs US Job Openings from 2002 through Q3 2021

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A possible cause for this disparity is the elevated level of US Unemployment Insurance Benefits to Persons, which might indicate that more people are relying on unemployment payments rather than income from work. From December 2017 until the COVID-19 pandemic struck, the seasonally-adjusted annual rate of insurance paid to unemployed persons never topped $30 billion. As of August 2021, that rate now stands at $365.8 billion, over 12x its pre-pandemic levels.

US Unemployment Insurance Benefits distributed from 2002 through Q3 2021

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Though this figure should decrease given the ending of additional Federal benefits in early September, there’s a chance the labor force participation rate will remain below pre-pandemic levels if unemployment insurance and job openings stay above theirs.

 

USD Purchasing Power Declines at Home, Grows Internationally

As the US Consumer Price Index has continued to increase over time, the purchasing power of the US dollar has decreased. CPI is 5.4% higher than it was a year ago, which has pushed the purchasing power of the greenback proportionally lower, down almost 5%.

US Consumer Price Index, Purchasing Power of the US Dollar, and ICE US Dollar Index from Q3 2020 to Q3 2021

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Though this might not be welcome news for US consumers, the dollar’s recent strengthening against other currencies reduces the cost of purchasing goods and services sold outside the US. Exchange rates for the US dollar to the Euro, British Pound Sterling, and Japanese Yen are all above their one year average. With some international border restrictions being loosened, Americans with overseas travel plans will surely benefit from cheaper French macaroons, British tea, and sake from Japan.

Exchange rates for US Dollar to Euro, British Pound, Chinese Yuan, and Japanese Yen from Q3 2020 to Q3 2021

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YCharts users—download the full deck in the Support Center. Not a current client? Reach out to get access, or enter your email below to receive a free version of the deck:

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Connect with YCharts

To get in touch, contact YCharts via email at hello@ycharts.com or by phone at (866) 965-7552

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Disclaimer

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