The first quarter brought investors yet another curve ball with Russia’s invasion of Ukraine. This sent shockwaves through global markets and added to already notable inflation pressures, while also casting a new light on international investing. Meanwhile, the Federal Reserve raised interest rates as policymakers began to reign in monetary stimulus. Markets ultimately proved more resilient than one might expect given these circumstances, with energy and commodity-related stocks leading the way. While the S&P 500® Index and Russell 2000® Index were down 12% and 14% at one point during the quarter, they finished down 4.6% and 7.5%, respectively. It’s worth noting, however, that the major indices belie underlying weakness in the market. Many stocks, especially in riskier corners of the market, have experienced steep declines.

Another year is in the books and what a wild year it was. Indeed, 2021 was quite an encore for 2020. We had a riot at the Capitol, vaccine introduction, economic “re-opening”, meme stock rally, the SPAC craze, supply chain snarls, widespread inflationary pressures, the Delta variant and more recently the Omicron variant. Many, including us, thought it would be difficult for investors’ risk appetites to sustain levels reached in late 2020. While some speculative pockets of the market weakened, there was no broad-based let down and we saw surprising gains powered by improved economic growth, accommodative policy and abundant liquidity. The S&P 500® Index finished the year up a stunning 28.7% while the Russell 2000® Index advanced 14.8%. Our equity portfolios also enjoyed solid gains for the year.

We are three-quarters of the way through 2021, and stocks are holding onto meaningful gains. As of September 30, the S&P 500® Index was up 15.9% year-to-date while the Russell 2000® Index had gained 12.4%. The third quarter itself was a bit more subdued, with the S&P up 0.6% and Russell down 4.4%. We were pleased to see solid relative performance from our portfolios as market conditions became more tumultuous. Stocks initially powered through headwinds associated with the Delta variant, but weakened late in the quarter alongside fears surrounding supply chain disruptions, waning economic stimulus and rising interest rates. In fact, the S&P was down 4.7% for the month of September. We think such a breather may be healthy given the torrid pace of gains through August, when the S&P seemed on pace for a record number of new highs in a year.

Equity markets remained strong in the second quarter with the S&P 500® Index and the Russell 2000® Index gaining 8.6% and 4.3%, respectively. Year-to-date, the S&P and Russell finished the quarter up 15.3% and 17.5%, respectively. Most Americans are vaccinated, the economic recovery from COVID has been in full swing and corporate earnings have generally exceeded expectations. More cyclical and value-oriented sectors such as energy and financials have been very strong; however, we’ve seen concurrent strength in durable growth sectors such as technology and communication services. It seems investors have migrated from stay-at-home plays to reopening plays to now buying everything.

Equity markets continued their remarkable run in the first quarter as risk taking was in full swing. The S&P 500® Index and Russell 2000® Index gained 6.2% and 12.7%, respectively. It’s hard to fathom how far we’ve come since early last year when COVID fears gripped the globe, businesses were shutting down and markets were in turmoil. Today, the narrative is markedly different as we are making significant vaccination progress, economies are re-opening and equity markets are near all-time highs.

Equity markets capped off a bizarre and turbulent year with a stunning fourth quarter rally. The S&P 500® Index gained 12.2% while the Russell 2000® Index was up an astonishing 31.4%. Election fears quickly became a distant memory in November and gave way to a buying stampede that went into high gear alongside the unveiling of a COVID vaccine. For the year, the S&P and Russell finished up 18.4% and 20.0%, respectively. Suffice it to say, such remarkable gains seemed unthinkable back in March when virus concerns had the S&P down over 30% for the year.

Equity markets continued their strong positive performance off the March lows in the third quarter. Despite a modest selloff in September, the S&P 500® Index gained 8.9% in the third quarter. Combined with Q2’s 20.5% gain, it was the best two-quarter stretch for large cap stocks since 2009, when markets were recovering from the financial crisis. Small caps’ gains were less robust, with a 4.9% rise in the Russell 2000® Index during Q3. Year-to-date, the S&P 500 is up 5.6% through the end of the third quarter, and the Russell 2000 is down 8.7%.

Equity markets find themselves in a much different place than a quarter ago. When we penned our first quarter update, coronavirus fears gripped financial markets around the world and stocks had retreated sharply from their highs. Since then, we’ve witnessed an astounding recovery for equities. In the second quarter, the S&P 500^® gained 20.5% (its best quarter since 1998) while the Russell 2000^® advanced 25.4%. Year-to-date, the S&P finished the period down 3.1%, a manageable decline that flies in the face of the dire predictions from just a few months ago. The Russell finished year-to-date down 13.0%, clearly a meaningful decline but much better than negative 30.6% at the end of March.