Q2 2021 Market Review
The market continues to climb higher as the economic recovery is underway from the Covid- 19 pandemic. The US market had strong returns ahead of international and emerging markets, as has pretty much been the case dating back to the recovery following the financial crisis over a decade ago. In Q2 the US market was up over 8% while international and emerging markets were each up over 5%. Of note, global real estate actually led the way this quarter with gains of over 10%. Fixed income markets gained 1.83% in the US and 0.35% globally in Q2, after each being down in Q1. For a detailed Market Overview, click here. Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557
crypto, crypto, crypto...
One of the most common and interesting topics in my recent conversations is around cryptocurrency. I wrote about Bitcoin over 4 years ago (link here). Since then, the topic has gained more popularity and a lot more money has flowed into the space. Elon Musk, the CEO of Tesla, has become a figurehead for cryptocurrency. Tesla invested part of its cash reserve into Bitcoin, Elon cryptically tweets about Dogecoin (which was originally developed as a joke) and announced Tesla would accept Bitcoin as payment for their cars and then changed that policy, sighting that the energy usage is not sustainable enough and is hard on the environment. It is amazing the influence he seems to have over the cryptocurrency market, even addressing it recently on Saturday Night Live. Below is a recap and updates to some of the information I wrote about four years ago. I mentioned the first real-world transaction for bitcoin was in 2010 when 10,000 bitcoin were used to buy two pizzas, which would have been worth about $40M in 2017. Today those 10,000 would be worth over $300M. The overall market capitalization of Bitcoin was around $45 Billion. Today it is around $600B. Since the invention of Bitcoin, other digital currencies including Dash, Ethereum and Litecoin have also become fairly popular. All of these coins still exist, and it is estimated there are around 8,000 different cryptocurrencies. Governments could try to interfere. China has since banned cryptocurrency transactions. Congress and numerous states have introduced bills and have pending legislation regarding cryptocurrencies. One thing that has remained consistent is that cryptocurrencies remain very volatile. Take a look at the price range for what are probably the three most talked-about cryptos recently. Recent Price One Year Price Range Current Market Cap (approx.)Bitcoin $32,500 $8,608 - $64,788 $600B Ethereum $2,000 $221- $4,372 $225B Dogecoin $0.22 $0.002277 - $0.737567 $27B With thousands of cryptocurrencies, I don’t believe they can all coexist successfully forever. There will likely be some that rise to the top (maybe some that haven’t even been invented yet) and many others will likely fade out. If you are interested in cryptocurrency, it is important to do your research. That said, as much research as you do, keep in mind that the concept and technology are still fairly new, and lack a long enough track record to draw any firm conclusions. In my last letter I said, “The concept is intriguing and I look forward to seeing how it develops”. Though we are several years down the road and there is a lot of momentum in the space, I feel similarly today. Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557
Since the Great Recession in 2008 the US stock market has outperformed international markets by a large margin. This has caused many portfolios to become overweighted in US stocks and some people have questioned if investing internationally still makes sense. There are many decisions to be made when allocating your investments and the charts below provide information to keep in mind when deciding how to allocate your investments in the US and overseas. The first chart shows US and international markets have historically traded periods of outperformance. The gray area represents when the US has outperformed, which you can see it has done for over 13 years now, and the purple area indicates international outperformance. The next two charts show that the S&P 500 looks to be fairly expensive given a variety of measurements, while international markets look cheaper comparatively. Keep in mind this is not a prediction that the tide is about to turn, I don’t know when a rotation of outperformance may shift. Rather, it is a reminder of how markets have worked in the past, and given these patterns tend to repeat themselves it will likely happen again. Some may argue that holding a portfolio of just US stocks such as the S&P 500 would have outperformed holding a globally diversified portfolio over the last decade, which is true. It is also true that if you held a portfolio of only international stocks during the previous decade you would have done better than allocating any money in the US market. However, since getting the timing of these cycles right is nearly impossible, an allocation to each is recommended and adds diversification to a long-term investment portfolio. The downside to diversification is you may not be the biggest winner from year to year, however, the beauty is that you are also not the biggest loser and long-term you are likely to have a more consistent and rewarding experience. If you would like to discuss international investing within your portfolio, please email me at firstname.lastname@example.org to schedule an appointment. Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557