Quarterly Market Commentary

March 1st, 2021

3rd Quarter 2021 Market and Economic Commentary

Dear Valued Client:

After a remarkably strong summer for stocks, a slew of negative headlines hit the markets in September and U.S. equity benchmarks fell across the board in what is historically one of the worst-performing months for equities. For the month, the S&P 500 Index fell 4.70% as investor uncertainty rose on the back of several issues that flared up, including fears that the debt-laden Chinese property developer Evergrande might default on its obligations and a possible spillover into global markets if that were to occur, an increased concern that supply-chain driven inflation may last longer than expected, a modest spike in bond interest rates and concerns surrounding the U.S. debt ceiling and the possibility that the U.S. Treasury could default on its debt payments. These issues seem like they may have simply been “on the calendar” however, as September ranks as the worst-performing month for the S&P 500 over the last 20 years, and it is the only month with negative average returns over the period. Accordingly, September 2021 was the S&P 500’s worst-performing month since the height of the pandemic in March 2020, while the second-worst performing month over this 18-month period was September 2020. As such, it bears noting that if something was going to hit the markets, there’s a decent chance it was going to happen in September.

Even with the broad declines in September, U.S. large company stocks, measured by the commonly followed S&P 500 Index, eked out a slight gain of 0.60% for the quarter. U.S. small company stocks, which tend to be more sensitive to volatility, fell however with the Russell 2000 Index notching a loss of 4.40%. Overseas equities also fell during the quarter, with developed and emerging markets equities losing 2.70% and 6.75% respectively. Equity sector performance was mixed during the quarter, with Financials, Healthcare, Technology and Utilities posting gains, while Industrials, Materials and Energy sectors were lower. Finally, bonds were generally flat on the quarter, with the Bloomberg US Aggregate Bond Index gaining 0.05%, although the index fell in the final month as interest rates moved higher. *

Looking ahead, while pullbacks in the market are something we never want, they are a necessary mechanism which can clean out possible excesses in certain areas and set the foundation for the next leg higher. In fact, market corrections might be more common than you think. Over the past 20 years, the market has experienced a correction of 10% or more in 11 of those years (Source: Schwab), which is an average of about one every 22 months. Pullbacks of less than 10%, like what we experienced in September, occur more frequently. There are some near-term headwinds and rising uncertainty for stocks to be sure, but it is our view that this bout of selling won’t last much longer, and we think the environment continues to look favorable overall as we enter what seasonally tends to be a strong period of the year. With that said, the market will need some questions answered more firmly before we can move off of September’s lows. Will our politicians reach an agreement to extend the debt ceiling or could we really be facing a government shutdown? Can corporate earnings growth and profitability meet expectations in light of persistent labor shortages and pesky inflation? Will the Federal Reserve ease into their tapering program or will they need to act more aggressively to address inflation? These are all important questions, and we believe the answers are likely to be less serious than feared.

In February we shifted our strategic investment models to a neutral position on equities, from an overweight position we’d held since the Covid related lows a year earlier, with a tilt to value stocks over growth. This positioning has played out well so far this year, particularly over the past month. We expect to maintain this general positioning through at least the spring of 2022, where we will then take stock of the environment and make decisions from there. We see our current strategies to be well positioned for what may lie ahead of us over the intermediate term and do not anticipate making any near-term adjustments to our models.

On another important note, last month the House Ways and Means Committee approved legislation that comprises its portion of a sweeping $3.5 trillion Build Back Better Act that contains Biden administration priorities for social and climate programs. This legislation includes tax provisions and increases targeted primarily at wealthy individuals, but there is a component that might impact average Americans. If passed, the bill would prohibit all after-tax contributions to company retirement plans and to traditional IRAs from being converted to a Roth IRA regardless of income level. That provision would take effect on December 31, 2021. Since guidance was published by the IRS in 2014, individuals have been able to roll after-tax contributions in their 401k plan to a Roth IRA, which was a powerful way to build assets in an account where future earnings grow tax-free. This option could be gone by the end of the year. If you have after-tax contributions in your 401k plan, or have been over contributing to your plan above the IRS deduction limit in order to build after-tax balances with the intention of rolling them over at retirement or some future date, please call us so we can discuss your particular situation.


As always, we are available if you have any questions about your portfolio, our current views and plans, or if you’d like to schedule a review, please don’t hesitate to contact our office at (858) 550-3960 or (800) 884-5121.


Sincerely yours,


Graydon Coghlan, CRPC – President/CEO
Registered Representative, Securities America, Inc.
Financial Advisor, Securities America Advisors, Inc.
CA Insurance License #0B31440

4370 La Jolla Village Drive, Suite 630
San Diego, CA 92122
(858) 550-3960 (phone)
(858) 550-3969 (fax)


All opinions and estimates included are as of the date listed and are subject to change without notice. This letter is provided for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security or offering of individual investment advice. The S&P 500 Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. The Barclays Capital U.S. Aggregate Index is a broad index representing the U.S. bond market. An investor cannot invest directly in an index. Past performance does not guarantee future results. * Sources: Nasdaq; Vanguard

Securities offered through Securities America Inc., a Registered Broker/Dealer Member FINRA/SIPC, Advisory services offered through Securities America Advisors Inc., an SEC Registered Investment Advisor, CFG Wealth Management and Securities America are not affiliated.  Trading instructions sent via e-mail may not be honored. Please contact my office at (858) 550-3960 or Securities America, Inc. at (800) 747-6111 for all buy/sell orders. Please be advised that communications regarding trades in your account are for informational purposes only. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. The text of this communication is confidential, and use by any person who is not the intended recipient is prohibited. Any person who receives this communication in error is requested to immediately destroy the text of this communication without copying or further dissemination. Your cooperation is appreciated.  10/21

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