3rd Quarter 2021 Outlook & Overview

Oakworth Capital Bank’s Investment Committee predicted the 3rd Quarter of 2021 would expand on the 2nd Quarter’s strong growth and market returns. Given the persistent tailwinds in the US economy, this was a relatively easy prediction. In fact, it seemed like a “slam dunk” until the last two weeks of September, when the markets gave back almost all of the gains for the quarter.

However, a pullback in the stock market and a slight increase in interest rates weren’t, or shouldn’t have been, a shock. After 7 consecutive months of positive returns in the S&P 500, it was arguably past time for a breather. Further, with the price of money in the US economy stubbornly much less than the stated rate of inflation, at some point rates were going to have to go up to acknowledge reality. By the time the dust settled, we ended 3Q 2021 on something of a down note, but not a death knell. Things had been too easy for too long, and all asset classes were getting a little bit stretched in valuation.

As for the economy, the Federal Reserve continues to pump money into the system; there are a historic number of job openings; consumer and business confidence remain reasonably high; the yield curve remains positively sloped; leading economic indicators have been strongly positive; the Congress is poised to dump potentially trillions of dollars into the economy, and the Delta variant curve appears to be flattening out as I type. Combined, economic activity remained reasonably strong, and should continue to do so, even if it might not be as robust as the first two quarters of 2021.

We hope you enjoy our analysis of what happened during the quarter in the markets and the economy, and why we think it happened. Further, we also hope you find our current investment strategies and predictions for the upcoming quarter to be insightful. So far, and it is hard to believe we are already over halfway done with it, 2021 has been a wild ride and we still have one more quarter to go!

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