Domestic Markets – 2Q21 Review

Domestic Markets – 2Q21 Review

A recap on what happened in the U.S. market during the last quarter.

U.S. equities marched higher in the second quarter, with the S&P 500 posting a gain of 8.6% (just shy of a new all-time high). Small cap stocks were also positive in the quarter, with the Russell 2000 Index adding 4.3%. Market volatility has continued to decline throughout the year, providing a somewhat placid backdrop for stocks to drift higher. Investor sentiment seesawed between reflation/reopening plays and longer duration cyclical growth stocks, with the latter outperforming as bond yields declined.

Risk assets were temporarily rattled in June by the divergence in messaging coming out of the Federal Reserve, as some policymakers shifted from a longstanding accommodative position to a more hawkish stance. The combination of strong inflation data and the associated potential for earlier-than-expected tightening measures would have typically weighed on the equity markets. Yet stocks quickly recovered any losses and grinded higher, which speaks to the high level of confidence that market participants have in the Fed’s ability to execute their average inflation framework in the face of higher prices and a recovering labor market.

In our view, the Fed’s policy moves made in the early days of the pandemic were key in providing a necessary backstop for risk assets. Yet this ultra-accommodative policy stance is now resulting in market conditions commonly associated with asset bubbles. As the recovery in the U.S. economy continues to take hold, monetary policy should adjust accordingly. The longer the punch bowl remains in place, the more difficult it will be to remove (and the greater the ensuing hangover).

While not currently a priority for many investors, company-specific attributes such as strong balance sheets, defensible margins, and persistent cash flow generation should take on increased importance as the current cycle evolves. These fundamental characteristics remain key inputs to the buy decision here at Cambiar.

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Disclosures

Certain information contained in this communication constitutes “forward-looking statements”, which are based on Cambiar’s beliefs, as well as certain assumptions concerning future events, using information currently available to Cambiar.  Due to market risk and uncertainties, actual events, results or performance may differ materially from that reflected or contemplated in such forward-looking statements.  The information provided is not intended to be, and should not be construed as, investment, legal or tax advice.  Nothing contained herein should be construed as a recommendation or endorsement to buy or sell any security, investment or portfolio allocation.  Securities highlighted or discussed have been selected to illustrate Cambiar’s investment approach and/or market outlook. The portfolios are actively managed and securities discussed may or may not be held in client portfolios at any given time, do not represent all of the securities purchased, sold, or recommended by Cambiar, and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Any characteristics included are for illustrative purposes and accordingly, no assumptions or comparisons should be made based upon these ratios. Statistics/charts are based upon third-party sources that are deemed reliable; however, Cambiar does not guarantee its accuracy or completeness.  As with any investments, there are risks to be considered.  Past performance is no indication of future results.  All material is provided for informational purposes only and there is no guarantee that any opinions expressed herein will be valid beyond the date of this communication.