Third Quarter 2021 Market Snapshot

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Third Quarter 2021: Dollar Tree Breaks the Buck

After a strong start to the first half of the year, investors turned cautious during the summer as supply constraints, inflation, and the Delta variant impacted global markets. Global equities ended the quarter in roughly the same place they began, but the surface-level stillness hid the churn underneath as large-cap US stocks were once again in favor over small-cap and international shares.

The Delta variant of Covid-19 appeared to soften US economic growth this summer as consumers spent less on meals out, hotels, and airline tickets. What was predicted to be a September boom as offices and schools reopened turned into a muddled mess that looks unlikely to be resolved anytime soon. Demand, which has been buoyed by the enormous fiscal injections over the past 18 months, has remained elevated. Consumers, who have amassed higher savings than any time in recent history, have shifted their spending from services and into consumer goods. The newly purchased goods, however, still need to be manufactured and shipped; a process that has been increasingly difficult as product delays, worker shortages, and sky-high shipping costs hamper all parts of the supply chain. With all the logistical difficulties, even discount retailer Dollar Tree was forced to raise prices above their namesake $1 price point.

How quickly the world can sort out its supply-chain bottlenecks will likely go a long way toward determining whether the higher rates of inflation will be permanent. Federal Reserve Chair Jerome Powell, for his part, has remained steadfast that the higher rate of inflation is “transitory” and in his view, likely to return to normal at some point in 2022. One group that has already returned to normal is Congress, as they once again have begun inter- and intra-party squabbling on yet another contentious vote to lift the debt ceiling. So far, the markets have met the potential technical US default with a collective shrug. Interest rates bounced around before ticking up at the end of the quarter but even still, they hover near historic lows. Bond returns, like equity returns, were roughly flat for the quarter.