Quarterly Commentary is a quarterly view of the equities, fixed income and hedge fund markets from our Family Management specialists.
Markets receded in the first quarter of 2021, with the most severe pullbacks experienced within growth-oriented sectors such as technology, healthcare and communication services. Isolating just the Nasdaq, from its peak in mid-November 2021 to its trough in mid-March 2022, it experienced a pull-back of -21% compared to the S&P 500 down -10% over this same timeframe, with many instances of underlying companies that were previously COVID beneficiaries retracing back to pre-COVID levels as the market sharply re-adjusted expectations for future growth.
Reflecting on the Q3 2021 earnings season, a common theme was observing companies posting top-line revenue beats, though some missing expectations on bottom-line earnings-per-share (EPS) and providing slightly softer guidance on future growth as many of the companies noted continued challenges with supply chain disruptions, persistent raw material inflation, and ongoing labor shortages.
The quarter began with a strong earnings season with Q2 2021 reported earnings above expectations. The S&P 500 posted Q2 2021 earnings growth of 62.5% YoY, yet despite the strong numbers, one of the key reasons was due to easier comps versus Q2 2020 during which the sharpest decline of company growth took place shortly after the pandemic began.
Stocks advanced in the second quarter of 2021 as investors cheered a stronger than expected reopening. Sectors such as travel, leisure, and consumer discretionary saw large impulsive spending increases. Meanwhile, the Federal Reserve grappled with whether the price increases seen in the economy were temporary, as a supply constrained environment failed to meet enough capacity of the reopening demand.