economic perspective

July 2021


By Stephen Rich

U.S. investors have been extremely optimistic about the financial markets during the first six months of 2021. 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 the positive outlook.

Vaccines and Jobs Drive Optimism

Much of the strength in the financial markets is due to the approval and rollout of several COVID-19 vaccines. 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, it will be difficult for federal, state or local governments to reimpose broad lockdowns, as these would likely have a meaningful negative economic impact.

In addition, during the first half of this year, the consumer balance sheet is proving quite strong. The personal savings rate, which is currently at 12.4%, is more than double the pre-pandemic level of 6.1% in May 2019. While 6.2 million people reported in June that they were unable to work because their employer closed or lost business due to the pandemic, this is down from 7.9 million in May and is a vast improvement from the double-digit levels experienced last year. Given the general financial health of the consumer and the improving employment situation, the economy is likely to be robust for the foreseeable future.

Market Snapshot

With the backdrop of a strong U.S. economy, equity markets in the second quarter of 2021 added to the gains achieved in the first quarter. Overall, the S&P 500® Index reached all-time highs on 34 occasions in the first half of 2021. The best returns for the second quarter and year to date were in the cyclical, sensitive sectors, such as energy and financials. However, all domestic and international equities posted mid-to-high single-digit returns for the second quarter alone and high single- to double-digit returns for the year to date. Through June 30, 2021, 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 stocks were the best-performing segment of the equity market during the first half of 2021, given their high operating leverage to the reopening of the economy.

In the fixed income markets, the 10-year U.S. Treasury bond rose to 1.76% at the start of the second quarter, as investors worried that strong consumer demand and ample monetary and fiscal liquidity would lead to higher levels of inflation. 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. By the end of the quarter, the fixed income markets settled down, and the 10-year Treasury yield had retreated to 1.47%.


As this summer has progressed, the Delta variant of the coronavirus has proven quite transmissible, especially among non-vaccinated individuals, leading to a spike in infections in pockets of the U.S. However, as long as the Delta variant can be contained, the economy should remain on strong footing given the strength in consumer spending, declining unemployment levels 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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