State of the Economy and Markets

Quarter 2, 2021

As we near the end of the second quarter, the U.S. economy continues to recover from the shock of COVID-19. The bounce back has been quite remarkable considering where we were just 12 to 15 months ago. Progress on vaccinations has reduced the spread here in the U.S., and economic activity has strengthened. As of June 17, 45% of the total U.S. population has been fully vaccinated and nearly 65% of adults are at least partially vaccinated. While these numbers vary from state to state, they are increasing by the day and so too are the lifting of restrictions that will allow the U.S. economy to reopen to full capacity. While many feared the economic recovery would be slow and muted, similar to the financial crisis of mid-2007 and early 2009, it has been anything but.

As various types of stimulus continued to be rolled out to both businesses and individuals, much of the talk of the second quarter has been centered around rising concerns about inflation and the impact that might have. The Federal Reserve continues to describe the current inflationary environment as “transitory” and largely the result of the impact of the pandemic. However, Chairman Powell mentioned that “higher and more persistent” inflation is something the Committee will be keeping a close eye on.

At its most recent meeting, the Federal Open Market Committee (FOMC) left policy unchanged, choosing to leave the federal funds rate at 0.00%–0.25% and continuing to purchase both Treasury and agency mortgage-backed securities. The FOMC improved its outlook on near-term economic growth and indicated they are likely to remain accommodative for some time. Short-term interest rates are forecast to remain at or near zero into the latter part of 2022, if not until sometime in 2023.

While a bit choppy during the second quarter, the U.S. equity markets continue to advance and both the DOW Jones Industrial Average and the S&P 500 Index are up in excess of 10% year-to-date, as of June 21. Low-interest rates and an accommodative Federal Reserve should continue to foster a favorable environment for equities going forward. During periods of rising inflation, equities have shown the ability to generate positive returns and a modest level of income, enough to surpass the impact of inflation. As I mentioned in my previous quarterly update, markets cannot go up forever without interruption. In fact, corrections of 10% occur every 16 to 18 months (the average lasting only around 40 days). We recommend that investors remain focused on the long-term and hold well diversified portfolios that should stand up to the many changes that come their way over the various economic and market cycles.

As always, your relationship team is here to meet with you, and we are very much looking forward to seeing those of you we may not have seen in-person for quite some time. We value your relationship and the confidence you have placed in Adirondack Wealth Management by choosing us as your financial partner.

Sincerely,

Michael Brodt
Senior Vice President
Wealth Management Director