G r a n a d a C a p i t a l M a n a g e m e n t , L L C


The stock market ended the third quarter near all-time highs with all of the major indexes up double digits YTD. However, the month of September provided negative returns for the stock market caused by concerns over inflation and FED tapering. Fixed income continues to provide poor returns in this low interest rate environment although interest rates started to inch up in Q3. U.S. treasuries yields provided negative returns, but inflation protected bonds and high yield bonds provided positive returns YTD in fixed income.

Major Indexes YTD 2021
Dow Jones 10.6%
S&P 500 15.9%
Russell 2000 12.4%
NASDAQ 12.1%

The domestic equity markets had solid returns through Q3,2021. Led by financials, real estate and commodities as inflation fears ramped up. The technology sector had positive returns YTD, but it underperformed the leading sectors due to high valuations and rising interest rates. Value outperformed growth YTD in the small, mid and large cap space as listed in the table below.
Below is a total return table through September 30, 2021 by style:

Small-cap value 25.51%
Mid-cap value 20.09%
Large-cap value 16.39%
Large-cap growth 13.09%
Mid-cap growth 9.09%
Small-cap growth 9.07%

G r a n a d a C a p i t a l M a n a g e m e n t , L L C
“ Building wealth over the long-term in a risk control manner”

The overseas equity markets underperformed the US equity markets. The best performing overseas market was the India region. India has the second largest population in the world at 1.38 billion people after China. India’s economy is expected to grow 9.5% in FY 2021 and 8.5% in FY 2022 according to the International Monetary Fund (IMF).
The Chinese government came down hard on Chinese technology stocks this year as it tried to reign in capitalism! Alibaba, Baidu, Tencent and NetEase to name a few, all had major corrections this year as a result of new government regulations and compliance. Going forward these stocks will have a lower valuation as a result of slower growth from government regulations. However, we are still bullish on the Chinese electric vehicle market as China is the largest car market in the world.

The U.S. Treasuries had negative returns YTD and when you factor in inflation the real returns were worse. For example: If a Treasury note is yielding 1% and inflation is running 2%, your real return is -1%. With inflation running about 2% or higher, it has been difficult to make a real return in fixed income. The exceptions being inflation protected bonds and high yield bonds up about 3.6% and 4.5% respectively YTD. For now, equities remain the best game in town.

The FED’s monetary policy has been based on inflation being transitory so they have not been in a rush to raise interest rates. Once the supply chain comes back online, inflation should moderate. Most market gurus expect the stock market to rally in Q4 as concerns over inflation and higher rates ease. Earnings for Q3 and beyond will be strong as the US economy rebounds from the pandemic. Goldman Sachs forecasts GDP growth of 5.6% in 2021 and 4% in 2022.

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