To the vexation of investors everywhere, the market slide, which began in January, continued through the third quarter. U.S. large-company stocks were down 4.9%, small-company stocks were off by 2.2%, foreign stocks slid 9.4%, and bonds lost 4.8%.
Stock and bond markets were down sharply over the second quarter as inflation flared.
During the second quarter, large-company stocks fell 16.1%, small-company stocks dropped 17.2%. Foreign stocks were down 14.5%, and even bonds lost ground, falling 4.7%. In the first half of 2020 as the pandemic took hold, the U.S. economy technically slipped into a steep, yet brief, recession. The U.S. government and the Fed responded quickly with interest rate cuts and economic stimulus programs, both designed to spur the economy. The plan helped to avoid what could have been broad economic calamity in the U.S. The economy rebounded and was recovering at a rapid pace by the end of 2020, and that momentum carried all the way through 2021.
In a marked contrast to results over the last three years, the stock and bond markets each ended the first quarter decidedly lower. In the U.S., large company stocks were down 4.6% and smaller companies were down 7.5%. Foreign stocks were down 5.9% and bonds were lower by 5.9%. The volatility during the quarter was brought on by a slowing global economy, the anticipation of rising interest rates and military conflict in Ukraine.
The stock market ended the final quarter of the year with some measures higher and some measures lower, though for the year markets were solidly higher. For 2021, large company stocks rose 28.7%, small company stocks rose 14.8%, and foreign stocks were up 11.3%. Domestic bonds for the year were down 1.5 percent.
The initial phase of the COVID-19 pandemic in early 2020 created a sudden freeze in global economic activity on a historic scale. In the following phase—roughly beginning June 2020 and continuing to the present—the economy has experienced an astonishing rebound surpassing all expectations. The rebound has been fueled by unprecedented government stimulus programs in various forms, as well as the deployment of effective vaccinations, which helped bring people out again.
The stock market finished mixed for the third quarter with the stocks of large US companies rising 1.2% while smaller US company stocks declined -3.5%. Foreign stocks were also lower by 1.4%, and US bonds were higher by 0.4%. Covid cases linked to the Delta variant increased over the summer, causing more consumers to stay closer to home. With less consumer spending, the pace of economic recovery in the US slowed over the quarter.
Unemployment in the US is still high by historical standards, measuring at 5.9% in June, well above the pre-pandemic rate of 3.5%. Economists have noted an anomaly in matching laid-off workers with available job opportunities as the economy continues its uneven reopening process.
The stock market moved generally higher during the second quarter, although we saw a fairly sharp diversion between the results of domestic large company stocks and smaller company stocks. For the quarter, large US stocks were up 8.5%, small US stocks were up 4.3%, and foreign stocks were up 5.2%. Bonds rebounded from first quarter losses, rising 1.8% for the second quarter.
On December 14, as a year of staggering loss was coming to a close, Covid-19 vaccine distribution began in the United States. As of this writing, more than 124 million people have received the vaccine, while 46 million people (more than 14% of the total US population) are fully vaccinated. The accelerating pace of vaccination is good news from a public health perspective, a welcome harbinger for the many households that have suffered financially during the pandemic, and critical to the economic recovery of the nation.
For the first quarter, large company stocks in the US rose 6.2%, smaller company stocks were up 12.7%, foreign stocks were higher by 3.5%, and US bonds (broadly measured) were down -3.4%. As vaccination rates grew, business restrictions relaxed and employment forecasts brightened. Optimism about the US economy grew during the first quarter, helping to support the markets. Over the last year, market growth
The three major events of the year—the coronavirus pandemic, racial unrest, and a contentious presidential election— combined to present an environment that we could scarcely have imagined twelve months ago. There has been plenty of fallout from these events, including the heartbreak over lives lost, economic hardship, a painful confrontation with systemic racism, and the thorough disruption of communities and local economies.
As of this writing, more than 78 million cases of COVID-19 have been confirmed worldwide, and more than 1.7 million deaths have been attributed to the pandemic—numbers that continue to rage out of control. These are losses that overwhelm the mind. The enduring legacy of the pandemic will be the massive void left by those who have died.
In spite of heightened volatility in stocks as the quarter drew to a close, the markets generally moved higher over the period. For the quarter, US large company stocks rose 8.9%, smaller company US stocks were up 4.9%, foreign stocks were higher by 4.8%, and US bonds, broadly measured, were up 0.6%. While stock indexes were higher for the quarter, the markets were mixed, with small company and foreign stocks having lost value, while large company stocks have moved higher.
As we concluded the first full quarter of economic fallout from the coronavirus pandemic, stock values were generally higher, with large company stocks up 20.5%, smaller company stocks up 25.4%, and foreign stocks up 14.9%. Bonds, broadly measured, rose by 2.9%. These returns have an impressive luster in part because they are measured relative to the market trough of late March. Overall stocks remain lower for the year.