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We are about to wrap up the third quarter of 2021. The broader market posted a muted performance during this frame mainly due to the COVID-19 Delta-variant scare, Fed’s taper talks and the resultant rising rate worries, the probability of a tax hike and China’s real estate developer Evergrande’s default risks.
The S&P 500 and the Nasdaq Composite has gained about 1.4% and 0.13%, respectively, in the past three months (as of Sep 28, 2021). The Dow Jones has added even more muted gains of 0.02%. The small-cap index Russell 2000 has lost 3.4%. Let’s see what major ETF events ruled the market in the third quarter.
Ebbs & Flows in Global Markets
The third quarter has not been all bad for the markets. The S&P 500 delivered a moderate performance in July and booked an awesome August. September has been soft with the S&P 500 losing about 3.8% in the past month.
The S&P 500 and the Nasdaq recorded several all-time highs in the third quarter. Solid U.S. economic data points, easy monetary and fiscal policies and vaccine distribution have led to this upsurge. Upbeat earnings have also contributed to the rally. However, the adverse seasonality of September, the Evergrande debacle and rising rate worries weighed on stocks in September.
Oil Rally
Oil crossed the $75-level in the third quarter. United States Oil Fund, LP (USO - Free Report) has gained 5.3% in the third quarter while United States Brent Oil Fund, LP (BNO) has added about 7%. Oil price has been on a tear with Brent hitting the highest level since October 2018. The rally has been driven by supply disruptions and storage drawdowns as well as growing demand with the easing of pandemic restrictions. Oil drillers in the Gulf of Mexico are still struggling to restore output more than two weeks after Hurricane Ida made landfall on the coast of Louisiana, with almost a third of production still idled (read: Play the Rising Energy Sector With These Leveraged ETFs).
Senate’s Approval of Infrastructure Bill
In August, the Senate passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. The 2,702-page legislation is aimed at establishing the United States with the world's best economic infrastructure. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
The infrastructure bill will provide $100 billion toward roads, bridges and other major projects. The plan allocates $39 billion to modernize public transit and improve access for disabled people.iShares U.S. Infrastructure ETF (IFRA - Free Report) and Invesco Dynamic Building & Construction ETF (PKB) are likely to be the beneficiaries of the bill (read: ETFs To Play U.S. Infrastructure Overhaul).
Taper Talks
Federal Reserve Chair Jerome Powell said the central bank could start scaling back asset purchases as soon as November and finish the process by mid-2022. Several officials are even interested to hike interest rates next year.
The announcement of the Fed QE taper may come in the policy gathering on Nov 2-3. However, the Fed chair Powell left the door open to wait longer should the need be and stressed that tapering is not directly corelated with the timing of rate liftoff (read: Fed Taper to Start in November? 7 ETFs to Buy).
The benchmark U.S. treasury yield increased to 1.54% on Sep 28 from the quarter’s low of 1.19% due to taper talks. Invesco DB US Dollar Index Bullish ETF (UUP - Free Report) and iShares U.S. Regional Banks ETF (IAT) are some of the funds that should be the direct beneficiaries of the Fed’s likely taper move.
Crash in Chinese Stocks; Evergrande Crisis
Chinese stocks crashed in the third quarter withiShares Trust - iShares China Large-Cap ETF (FXI - Free Report) losing 18.8% in the past three months while KraneShares CSI China Internet ETF (KWEB - Free Report) lost about 32%. China’s regulatory crackdown on various sectors, especially technology, has hit the market hard. If this was not enough, China’s real estate behemoth Evergrande has failed to make interest payment on $US83.5 million on a dollar-denominated bond, stirring the default risks even more. The crisis had shaken the global markets in the third quarter.
Tax Hike Worries in the United States
House Democrats drew a host of tax hike plans on corporations and wealthy people to finance the costs associated with the social safety net and climate policy that could touch as much as $3.5 trillion. The plan demands top corporate and individual tax rates of 26.5% and 39.6%, respectively, according to a summary released by the tax-writing Ways and Means Committee, as quoted on CNBC. The proposal includes a 3% surcharge on individual income above $5 million and a capital gains tax of 25%.
Notably, in the 2017 Republican tax cuts’ proposal, the GOP cut it to 21% from 35%. Republicans also cut the top individual tax rate to 37%. The above tax plan may mean a somber Wall Street for the short term. However, the fate of such proposals is yet unsure (read: Tax Hike in the Cards? ETFs in Focus).
India: One of The Best Global Markets
India’s equity market has been on a tear lately. Easing COVID-induced restrictions, falling COVID-19 cases, record vaccinations and healthy earnings, and the global easy money policy have led to the upsurge. A shift from physical assets and low-yielding fixed-income securities are forcing investors to bet big on equities, per Susmit Patodia, Director, Portfolio Manager at Motilal Oswal Asset Management Company, as quoted on Moneycontrol. Vaneck India Growth Leaders ETF (GLIN), India Small-Cap iShares MSCI ETF (SMIN) and India 50 iShares ETF (INDY - Free Report) have gained in the range of 12% to 13% in the third quarter.
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Top ETF Stories of Third Quarter
We are about to wrap up the third quarter of 2021. The broader market posted a muted performance during this frame mainly due to the COVID-19 Delta-variant scare, Fed’s taper talks and the resultant rising rate worries, the probability of a tax hike and China’s real estate developer Evergrande’s default risks.
The S&P 500 and the Nasdaq Composite has gained about 1.4% and 0.13%, respectively, in the past three months (as of Sep 28, 2021). The Dow Jones has added even more muted gains of 0.02%. The small-cap index Russell 2000 has lost 3.4%. Let’s see what major ETF events ruled the market in the third quarter.
Ebbs & Flows in Global Markets
The third quarter has not been all bad for the markets. The S&P 500 delivered a moderate performance in July and booked an awesome August. September has been soft with the S&P 500 losing about 3.8% in the past month.
The S&P 500 and the Nasdaq recorded several all-time highs in the third quarter. Solid U.S. economic data points, easy monetary and fiscal policies and vaccine distribution have led to this upsurge. Upbeat earnings have also contributed to the rally. However, the adverse seasonality of September, the Evergrande debacle and rising rate worries weighed on stocks in September.
Oil Rally
Oil crossed the $75-level in the third quarter. United States Oil Fund, LP (USO - Free Report) has gained 5.3% in the third quarter while United States Brent Oil Fund, LP (BNO) has added about 7%. Oil price has been on a tear with Brent hitting the highest level since October 2018. The rally has been driven by supply disruptions and storage drawdowns as well as growing demand with the easing of pandemic restrictions. Oil drillers in the Gulf of Mexico are still struggling to restore output more than two weeks after Hurricane Ida made landfall on the coast of Louisiana, with almost a third of production still idled (read: Play the Rising Energy Sector With These Leveraged ETFs).
Senate’s Approval of Infrastructure Bill
In August, the Senate passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. The 2,702-page legislation is aimed at establishing the United States with the world's best economic infrastructure. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
The infrastructure bill will provide $100 billion toward roads, bridges and other major projects. The plan allocates $39 billion to modernize public transit and improve access for disabled people.iShares U.S. Infrastructure ETF (IFRA - Free Report) and Invesco Dynamic Building & Construction ETF (PKB) are likely to be the beneficiaries of the bill (read: ETFs To Play U.S. Infrastructure Overhaul).
Taper Talks
Federal Reserve Chair Jerome Powell said the central bank could start scaling back asset purchases as soon as November and finish the process by mid-2022. Several officials are even interested to hike interest rates next year.
The announcement of the Fed QE taper may come in the policy gathering on Nov 2-3. However, the Fed chair Powell left the door open to wait longer should the need be and stressed that tapering is not directly corelated with the timing of rate liftoff (read: Fed Taper to Start in November? 7 ETFs to Buy).
The benchmark U.S. treasury yield increased to 1.54% on Sep 28 from the quarter’s low of 1.19% due to taper talks. Invesco DB US Dollar Index Bullish ETF (UUP - Free Report) and iShares U.S. Regional Banks ETF (IAT) are some of the funds that should be the direct beneficiaries of the Fed’s likely taper move.
Crash in Chinese Stocks; Evergrande Crisis
Chinese stocks crashed in the third quarter withiShares Trust - iShares China Large-Cap ETF (FXI - Free Report) losing 18.8% in the past three months while KraneShares CSI China Internet ETF (KWEB - Free Report) lost about 32%. China’s regulatory crackdown on various sectors, especially technology, has hit the market hard. If this was not enough, China’s real estate behemoth Evergrande has failed to make interest payment on $US83.5 million on a dollar-denominated bond, stirring the default risks even more. The crisis had shaken the global markets in the third quarter.
Tax Hike Worries in the United States
House Democrats drew a host of tax hike plans on corporations and wealthy people to finance the costs associated with the social safety net and climate policy that could touch as much as $3.5 trillion. The plan demands top corporate and individual tax rates of 26.5% and 39.6%, respectively, according to a summary released by the tax-writing Ways and Means Committee, as quoted on CNBC. The proposal includes a 3% surcharge on individual income above $5 million and a capital gains tax of 25%.
Notably, in the 2017 Republican tax cuts’ proposal, the GOP cut it to 21% from 35%. Republicans also cut the top individual tax rate to 37%. The above tax plan may mean a somber Wall Street for the short term. However, the fate of such proposals is yet unsure (read: Tax Hike in the Cards? ETFs in Focus).
India: One of The Best Global Markets
India’s equity market has been on a tear lately. Easing COVID-induced restrictions, falling COVID-19 cases, record vaccinations and healthy earnings, and the global easy money policy have led to the upsurge. A shift from physical assets and low-yielding fixed-income securities are forcing investors to bet big on equities, per Susmit Patodia, Director, Portfolio Manager at Motilal Oswal Asset Management Company, as quoted on Moneycontrol. Vaneck India Growth Leaders ETF (GLIN), India Small-Cap iShares MSCI ETF (SMIN) and India 50 iShares ETF (INDY - Free Report) have gained in the range of 12% to 13% in the third quarter.