U. S. stocks churned in the third quarter of 2021. Rising U. S. Treasury yields, inflation concerns, and contentious Congressional negotiations impacted stock prices in September. These losses essentially wiped out the gains made in July and August. The top-performing ETFs, Fidelity funds, and S&P 500 members advanced in this milieu. Niche ETFs and selected S&P 500 winners gained double-digits. Here is a list of the best, along with what to look forward to in the fourth quarter.
The S&P 500 advanced in July and August, gaining 2.4% and 3.0%, respectively. Record-breaking positive surprises in second-quarter earnings reports, the Federal Reserve’s accommodative interest-rate policy, and full approval for the Pfizer-BioNTech COVID-19 vaccine helped offset concerns from rising inflation and surging new COVID cases.
With little to no support from earnings reports, stocks found the going tougher in September. Although new COVID cases declined in September, inflation continued to remain high, causing investors angst. The yield on the 10-year Treasury note surged 0.23% in September, picking up steam after the Federal Reserve signaled its readiness to cut back stimulus implemented during the pandemic.
Congress tried to fund the federal government, address the debt ceiling, and move the infrastructure bill forward in September. Congress succeeded in averting a federal government shutdown by passing a short-term spending bill to keep the government running through December 3. Lawmakers failed to address the debt ceiling or move the infrastructure bill forward.
Weighed by the rise in bond yields, concerns about inflation, and stalemate in Congress, the S&P 500 lost 4.7% in September. The benchmark ended the third quarter up 0.6%.
Here, we look at what ETFs, Select SPDRs, Fidelity funds, and S&P 500 stocks returned the most in the third quarter.
Best ETFs of 3Q 2021
Natural gas, ethereum, and metals such as rare earths, uranium, and lithium, were themes that worked well in the ETF world.
- United States Natural Gas Fund, UNG +54.1%
- Grayscale Ethereum Trust, ETHE +27.0%
- VanEck Rare Earth/Strategic Metals ETF, REMX +21.5%
- North Shore Global Uranium Mining ETF, URNM +22.9%
- Global X Lithium & Battery Tech ETF, LIT +13.1%
Best Select Sector SPDR ETFs of 3Q 2021
The Financial Select Sector SPDR took the top position. A surge in bond yields in the latter part of September boosted financial stocks across the board.
- Financial Select Sector SPDR, XLF +2.7%
- Utilities Select Sector SPDR, XLU +1.8%
- Health Care Select Sector SPDR, XLV +1.4%
- Technology Select Sector SPDR, XLK +1.3%
- Real Estate Select Sector SPDR, XLRE +0.8%
Best Fidelity Funds of 3Q 2021
Fidelity funds focused on Japan, medical devices, water, leisure, and insurance claim top honors. Japanese stocks rose to a 30-year high after Prime Minister Suga announced he would not seek re-election. Investors bid up share prices expecting Suga’s successor to increase stimulus spending.
- Fidelity Japan Fund, FJPNX +6.2%
- Fidelity Select Medical Technology and Devices Portfolio, FSMEX +6.1%
- Fidelity Water Sustainability Fund, FLOWX +5.6%
- Fidelity Select Leisure Portfolio, FDLSX +4.5%
- Fidelity Select Insurance Portfolio, FSPCX +4.4%
Best S&P 500 Stocks of 3Q 2021
Two of the top five winners for the quarter were health care companies: COVID vaccine developer Moderna and medical equipment maker Danaher. Other winners included software firms Oracle and ServiceNow and oil & gas explorer and producer ConocoPhillips.
- Moderna, Inc., MRNA +61.3%
- Oracle Corporation, ORCL +17.2%
- Danaher Corporation, DHR +14.3%
- ServiceNow, Inc., NOW +12.5%
- ConocoPhillips, COP +11.7%
Looking ahead to 4Q 2021
Investors have plenty to worry about as the fourth quarter begins in earnest. Inflation and interest rates are the top-of-the-mind issue. Investors also have their eye on supply chain disruptions, the debt ceiling, the infrastructure spending bill, and the solvency of troubled Chinese property developer Evergrande.
* Inflation metrics have shown no sign of abating. Fed Chairman has acknowledged inflation could persist longer than expected due to supply chain disruptions. Barring new economic threats, investors expect the central bank to formally announce its plans to taper $120 billion in monthly bond purchases during the fourth quarter. Meanwhile, market participants will focus on economic data such as the September jobs report this Friday to assess when the Fed will announce and taper its bond purchases.
* Investors are also trying to assess the impact of supply chain disruptions on corporate earnings after Nike and Bed Bath & Beyond lowered their financial projections citing logistical issues. Comments from consumer staples companies PepsiCo, Constellation Brands, Conagra Brands, and Lamb Weston should shed more light on supply chain issues when these S&P 500 members report earnings this week.
* Although Congress averted a government shutdown with a last-minute spending bell, lawmakers still have the task of addressing the debt ceiling. The lawmakers need to raise or suspend the debt ceiling before the government reaches the limit to prevent the U. S. from defaulting on its debt. The future of the proposed $3.5 trillion infrastructure plan is uncertain. Republicans and some Democrats oppose the bill, threatening to derail President Biden’s domestic agenda. Investors are also likely to hear more on proposals to raise corporate and individual tax rates to fund the trillion-dollar spending bill.
* Highly indebted Chinese property developer Evergrande failed to make payments on its foreign currency-denominated debt in September. Although fears of Evergrande’s default triggering a contagion have faded, Evergrande’s progress or lack thereof is likely to be a news headline issue in the coming weeks.
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