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2021 Third Quarter Commentary: Turbulent Waters Ahead

Both bond and equity markets have turned more skittish, and at these valuation levels they certainly should be. As we’ve highlighted all year, navigating this economic recovery will not be an easy task, yet we also have several reasons to be optimistic, which we discuss in our latest commentary.

Commentary Highlights:

  • With another quarter in the books, we observed an economy that continued its path of expansion despite summertime disruptions caused by the spread of the COVID delta variant.  As a result, economic data points were somewhat mixed during the period, and this uncertainty was reflected in risk markets.
  • It’s more evident now that pandemic-related distortions are causing economic indicators to paint a very ambiguous picture of the overall health of the US economy. Trying to discern where we are from a traditional business cycle standpoint is difficult. There are several global challenges that still need to be addressed – all stemming from the global supply shock created by the pandemic. Supply chain issues are still wide in scope- global factory shutdowns, backlogged ports, and parts scarcity have driven goods prices higher. 
  • On a brighter note, COVID cases continue to fall, and moreover, receding hospitalizations are consistent with an improving pandemic outlook. Overall, we remain cautiously optimistic but recognize there are plenty of speed bumps ahead.
  • As we look towards the conclusion of 2021, we believe that our alternative-focused positioning is the correct one for the uncharted environment ahead.
    • Given the heightened levels of valuation dispersion seen in the equity markets, we continue to believe that the current backdrop is an incredibly favorable one for skilled stock pickers.
    • Private real estate and private credit exposures continued their outperformance relative to generic corporate credit and traditional bonds. These asset classes have provided both strong income generation and capital appreciation. More importantly, they are likely to outperform traditional bonds in an environment of higher inflation.
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