The following Q2 market update provides context for the investment performance of your charitable assets.
From Cambridge Associates, investment advisor
Equities and risk assets excelled in the second quarter, driven by improving economic momentum. Inflationary pressures mounted, leading to surging producer and consumer prices. However, markets took these higher inflation prints in stride, perhaps reflecting a consensus that the inflationary spike will subside. Temporary factors, such as pent-up demand and supply chain disruptions, are expected to diminish as conditions normalize. Moreover, bond yields and market inflation expectations generally declined or held steady during the quarter, contrasting sharply rising yields during the first quarter. While most central bankers continue to view the recent high inflation as transitory, rate-setters pivoted to a more hawkish-than-expected stance regarding future policy paths.
Global equities reached new all-time highs, advancing for the fifth consecutive quarter. US equities outperformed their international developed and emerging market equivalents and closed the quarter at all-time highs. 10 of 11 S&P 500 Index sectors gained, led by real estate, information technology, and energy, whereas utilities declined. Value stocks, which typically benefit from inflationary cyclical upswings, trailed growth stocks. Small caps lagged large caps, though value and small caps maintained their respective outperformance edge year-to-date.
European equities gained but underperformed broader developed markets due to US outperformance. Emerging market equities advanced for the fifth consecutive quarter following the COVID-19–driven drawdown in the first quarter of 2020 but delivered the lowest gain over that period. Fixed income assets advanced despite rising inflation, led by corporate and inflation-linked bonds. Real assets delivered hefty gains as resurgent demand boosted commodity prices. The US dollar mostly depreciated during the quarter.
COVID-19 and virus variants remain a key risk to the sustainability of the economic rebound, particularly amid high valuations across most capital market asset classes. Particularly with US equity valuations near all-time highs and interest rates poised to rise from low starting levels, traditional US stock/bond portfolios will be challenged to earn returns comparable to those experienced over the past decade.
We continue to believe that Thrivent Charitable’s diversified investment approach positions the portfolios well to navigate this challenging market backdrop and generate superior performance.