economic perspective

September 2021


By Stephen Rich

As we pointed out in our July Economic Perspective, much of the strength in the financial markets during 2021 is due to the approval and rollout of several COVID-19 vaccines in the U.S. Those vaccines have allowed Americans to resume their lives and return to relative normalcy as restrictions on most businesses throughout the country have been lifted or relaxed. With more than 50% of the U.S. population fully vaccinated through the end of August, and nearly 75% of adults having received at least one shot, it will be difficult for federal, state or local governments to reimpose broad lockdowns, as these would likely have a meaningful negative economic impact. During the first eight months of this year, U.S. investors were extremely optimistic about the financial markets. Mutual of America Capital Management LLC takes a look at a couple of key reasons why, and highlights the movements of the equity and fixed-income markets as a result of this positive outlook.

Market Snapshot

With the backdrop of a strong U.S. economy during July and August, equity markets further added to the gains achieved both in the first quarter and second quarter. The S&P 500® Index reached 12 all-time highs in August and 53 all-time highs since the end of December 2020, which marks the best start to a year since 1995. Not surprisingly, the S&P 500 returned 21.6% year-to-date through August 31, 2021. Over the same period, U.S. equity markets outperformed international equity markets, reflecting the earlier vaccination adoption success in the U.S. It is also worth noting that U.S. small-cap value stocks were the best-performing segment of the equity markets during the first eight months of the year, given their high operating leverage to the reopening of the economy.

After the first-quarter rout in the fixed-income market, when the 10-year U.S. Treasury bond reached a one-year high of 1.77%, bond yields fell, and prices rose. Overall, the prices of the 10-year Treasury bond and 30-year Treasury bond significantly improved since March 31, 2021, up 5.0% and 12.3%, respectively, over the last five months. Once again, the U.S. Federal Reserve offered reassurance that price increases would only be temporary and that the Fed would be ready to reduce bond purchases if higher levels of inflation were to evolve. On a year-to-date basis, the 10-year Treasury was down 2.5%, and the 30-year Treasury declined 6.0%. The 10-year Treasury yield started 2021 at 0.91% and rose by 0.40% to end August at 1.31%. At this point, the 10-year Treasury is slightly below prepandemic levels. In the year-to-date period ending August 31, 2021, the Bloomberg Barclays U.S. Corporate Bond Index and the Bloomberg Barclays U.S. Aggregate Bond Index fell 0.2% and 0.7%, respectively.


The past few months revealed that shutting an economy down is much easier than opening it back up, as many supply chains struggled to keep up with strong demand. Moreover, consumers accumulated large sums of savings during the lockdown phase and, given their pent-up demand, now have been motivated spenders throughout the reopening. As a result, higher levels of inflation started to appear in selective economic data. For example, the Consumer Price Index (CPI) in July showed a year-over-year increase of 5.3%, which was a tick below June’s reading of 5.4%. Both of these readings point toward increases in price inflation. Additionally, the Producer Price Index (PPI) surged to 7.8% year-over-year for the month of July. However, the Fed believes the current high levels of inflation will prove to be temporary and that supply chains and labor markets will normalize as the economic reopening matures.

Economic Symposium

During the last week of August, the Federal Reserve Bank of Kansas City sponsored its annual Jackson Hole Economic Policy Symposium. The symposium has been held every year since 1978, and this year, the Fed watchers were looking for some clarity on the timing of unwinding of quantitative easing. The Fed has been buying $120 billion of bonds ($80 billion in Treasuries and $40 billion in mortgage-backed securities) every month since March 2020 to support the U.S. economy as it recovers from the global pandemic. In general, Fed Chair Jerome Powell’s comments were received as dovish for the markets, as he reemphasized the Fed’s deliberate and flexible approach to tapering purchases of bonds, most likely beginning in November. He is preparing the financial markets as he looks to avoid the “taper tantrum” of 2013, when the Fed announced it was slowing its purchase of bonds, which roiled the markets after investors began to sell riskier assets in favor of the safety of bonds. For now, the stated policy is to keep rates low through at least 2023.

Jobs and JOLTS

On the employment front, weekly initial jobless claims have fallen substantially from the 2020 peak of about 6.1 million new claims in a single week. Since June 2021, the number of new claims vacillated in a range between 348,000 and 424,000. For the week ending August 26, 2021, the weekly claims were 353,000. To put this in perspective, the country was averaging just over 200,000 new claims per week in 2019. Data for continuing claims stood at 2.82 million a week for the period ending August 26, 2021. While that is substantially lower than the almost 14 million last year at this time, it is still about twice as high as prepandemic levels.

Looking less optimistic, the U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) for July showed that the number of job openings nationwide soared to more than 10 million for the first time ever.

Many business owners are hoping for an easier time hiring workers as a result of the September 5 expiration of federal pandemic unemployment benefit programs, which gave unemployed Americans an extra $300 per week. More than two dozen states had already withdrawn from the federal program during the summer.

Equity Valuations

The earnings recovery in the first half of 2021 was among the most remarkable in the modern history of the equity markets. Most macroeconomists started the year estimating that the S&P 500 would earn $175 a share, basically returning to prepandemic estimates set in 2019. Now, their estimates are at more than $210 a share. This increase, which is the result of soaring revenue combined with a cost structure that was held flat through the pandemic, is similar to what happened after the financial crisis of 2008–09. Currently, the S&P 500 trades at a forward price-to-earnings (P/E) multiple of 22.4, which is evaluated relative to the historic range of 14 to 15 times for forward multiples.


As we noted in the July issue of Economic Perspective, the Delta variant of the coronavirus has proven quite transmissible and relentless as this summer has progressed, leading to a spike in pockets of the U.S., especially among nonvaccinated individuals. However, as long as the Delta variant can be relatively contained, the economy should remain on strong footing given the following factors: an accommodative Fed, ongoing fiscal policy stimulus, strength in consumer spending, declining unemployment levels, strong corporate earnings and moderate levels of inflation. Therefore, the economic expansion should continue throughout the balance of the year, which would likely continue to boost the already strong equity markets.

Stephen Rich is the Chairman and CEO of Mutual of America Capital Management LLC.

Past performance is no guarantee of future results. The index returns discussed above are for illustrative purposes only and do not represent the performance of any investment or group of investments. Indexes are unmanaged and not subject to fees or expenses. The index returns above reflect the reinvestment of distributions. It is not possible to invest directly in an index.

The views expressed in this article are subject to change at any time based on market and other conditions and should not be construed as a recommendation. This article contains forward-looking statements, which speak only as of the date they were made and involve risks and uncertainties that could cause actual results to differ materially from those expressed herein. Readers are cautioned not to rely on our forward-looking statements.

Mutual of America Capital Management LLC is an indirect, wholly owned subsidiary of Mutual of America Life Insurance Company. Securities offered by Mutual of America Securities LLC, Member FINRA/SIPC. Insurance products are issued by Mutual of America Life Insurance Company.

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