Equities Make New All-time Highs as Fed Mulls 2021 Bond Taper

September 7, 2021

Despite several negative headlines for the month of August, equities continued their upward trend and closed with yet another strong performance month. The S&P 500 index ended the month of August up 3.04% while the more tech heavy NASDAQ Index finished up 4.09%.

The first few weeks of August were strong for equities. The tide quickly shifted midway through the month as the bombing at Kabul airport killing 13 American soldiers and many more civilians shocked markets and created a frantic flight to quality in the equity markets. However, the selloff proved to be short lived as the buy the dip mentality replaced sellers’ fears and drove equities to several new all-time highs to finish the month. In fact, in 2021 the S&P 500 has closed at more all-time highs than any calendar year spanning January to August going back to 1995. As you can see from the chart below 2021 has been a strong year in terms generating higher highs for the S&P 500. Nearly 1/3rd of 2021’s 166 trading days have closed above the previous all-time high.

Chart Source: Stadion based on S&P 500 data via Bloomberg Terminal.
Data for each year represents performance from January-August.

The Benchmark 10-year Treasury Yield had a relatively uneventful August month as the Fed’s Jackson Hole minutes highlighted some potential shifts in policy going into the final months of 2021. The Benchmark yield continued its dip off the year-to-date highs but rebounded during the back half of the month ending August at 1.3088%. The minutes revealed that most fed officials now support a pullback in the 120 billion a month bond buying program before 2022. Although this could mean sooner winding down in asset purchases than previously anticipated, most officials carried a rather dovish tone and favored a flexible approach to the taper.

What Now

As inflation lingers over the 2% target set by the Fed, it appears to be less likely we will continue to see the central bank’s extraordinarily accommodative monetary policies continue to 2022 and beyond. As with most things in life, timing is everything. When, and in what fashion, the fed lets their foot off the quantitative easing gas pedal may determine if markets and the broader economy take a hard landing or transition into a lasting recovery.

Technically Speaking

As we entered August, our longer-term technical model continued to maintain its most positive model reading. Despite equity markets near all-time highs, the shorter-term technical model entered the month with a reduced equity exposure due to lingering weakness in our model’s breadth indicators.  The negative price action in the wake of the Kabul airport bombing warranted another reduction in equity exposure for the shorter-term model. The reduced exposure proved to be short lived as the strong rally off the August lows flipped the shorter-term technical signals back on for full equity exposure. Entering September, both the long and short-term technical models are fully invested as our models remain positive and the long-term trend remains in place.


Brian Rosso, CFA
Portfolio Management Analyst

The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

Flight-to-quality is the action of investors moving their capital away from riskier investments to safer ones.

There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical measurements are one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity.

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