Nov 02, 2021

“The Markets Take a Breath”

Nov 02, 2021
Mark R. Gordon — JD, MPP, CFP®, CFA
Chief Investment Officer
Global equities rose dramatically during the first six months of the year. Last quarter, however, equity markets took a breath. Globally, stocks were down just over 1%.¹ Domestically, the US stock market rose about 0.5%.² Developed foreign markets went down about 0.5%.³ The outliers were emerging markets which fell just over 8%.⁴

Since COVID vaccines became available, clients have asked us questions along the lines of “How long can stocks go up,” “What’s going to happen once the pandemic is over,” or simply “What’s next?”  Most clients, by now, can anticipate our answer: we don’t know. Yet that doesn’t mean we don’t know anything. Although we can’t predict what the markets will bring, it appears to our eye the markets are currently digesting several global and/or macro events. Depending on how they work out, markets could go up or down from here. We’ll discuss each of these in order of likely importance.

First Factor: The Current Global Pandemic

Unfortunately, the COVID pandemic still affects everything. It seems odd to say this roughly 20 months in, but markets will move depending on whether and to what extent we’re collectively able to reduce or end the pandemic. We have certainly made great strides already: As of the end of September, nearly two-thirds of Americans have received at least one vaccination injection.⁵ Moreover, restaurants, movie theaters, and other hospitality/entertainment sectors have begun to open.

Yet we are still very far away from putting COVID in the proverbial rearview mirror. In the United States, we are still well below the 80% vaccination rate sought by medical and epidemiological professionals. Around the world, fewer than half of all people have received at least one vaccination. Moreover, there are countries – and the entire continent of Africa – with vaccination rates less than 20%.⁶ We are in a race to get folks vaccinated before new COVID variants emerge.

Although we as individuals may have grown accustomed to life with COVID, the markets haven’t. COVID illness still impacts almost everything: workers getting sick, schools closing, lack of child care, and even lack of investment capital. The more quickly we eradicate or, more likely, control COVID spread, the better the environment for investment returns.

Second Factor: Supply Chains and Inventory Management

Likely delighting economists (and few others), supply chains and inventory management have recently made headlines due to their impact on rising consumer prices. Supply chains represent consumer goods’ journey from raw materials to finished product. To take one example, below is a graphic depiction of Apple’s supply chain for its iPhones:⁷



We can see that an iPhone begins as a combination of materials and component parts from three continents. Each sourced item then travels to China for assembly. Once assembled, iPhones go either to Apple’s main warehouse facility or to a network of warehouses supporting online sales. The benefits of Apple’s supply chain are patent: Apple can pick and choose the best (or lowest cost) supplier for each of the iPhone’s myriad parts and the most efficient assembly process.

The COVID pandemic, however, has revealed a potential flaw in multi-stage chains: the more “links” in the chain, the greater chance that one may falter. Any impact on mining operations, chip production, factory workers, and/or shipping routes can potentially grind the process to a halt. Not surprisingly, the pandemic has impacted most or all the iPhone links. Apple still makes lots of iPhones, but not as many as they could pre-COVID and not enough to handle the recent increased demand. When supply isn’t able to meet demand, economics tells us we should expect higher prices, product shortages, or both. Today that’s exactly what we’re seeing – and not just from Apple.

Inventory management has also slowed economic activity during the pandemic. Many companies maintain what’s called “Just-in-Time” inventory:

A just-in-time (JIT) inventory system is [where] a company receive[s] goods as close as possible to when they are actually needed. So, if a car assembly plant needs to install airbags, it does not keep a stock of airbags on its shelves but receives them as those cars come onto the assembly line.⁸

In our opinion, another term for JIT inventory is “No Inventory.” It costs money to warehouse items, whether they’re inputs or completed products. JIT inventory, thus, can dramatically reduce costs. But JIT provides a much narrower margin if demand increases and/or supply decreases. Taking the definitional example above, a lack of plastics can lead to a lack of airbags, which can lead to a lack of vehicles, which can lead to a lack of delivery capacity, which means consumers may not get their presents in time for the winter holidays. Below is a meme-worthy depiction of this phenomenon:



We believe that, going forward, investment returns will depend upon how quickly we can reestablish functioning supply chains and sufficient inventory. Moreover, it’s possible that our current struggles may prompt companies to innovate around these issues. They say “necessity is the mother of invention.” If so, we may end up with more efficient practices and solutions than those in place when the pandemic began.

Third Factor: Government Action

Finally, we believe the infrastructure bills in the US Congress will impact investment returns going forward.¹⁰ Currently, the Senate and House are debating two separate bills: one focusing on traditional, “hard” infrastructure like roads and bridges and another targeting “soft” infrastructure like job training, child care, and affordable housing.

At the moment, our national legislature is debating two political questions: how large each bill should be and whether each individual provision is worth the investment. We do not have an official position on these political issues. We do, however, believe the larger the bills, the greater economic impact they’re likely to have. Passing the $1.5T hard-infrastructure bill and the (originally) $3.5T soft-infrastructure bill, detailed in the infographic here, should have a materially greater impact on investment returns than a more modest bill. Moreover, as we discussed in a recent Investment Roundtable,¹¹ we expect either or both to have a modest impact on inflation, if at all.



Again, we don’t have a position on whether any individual provision – or the bills in their entirety – are a “good idea,” only that they’re likely to have a positive impact on global equity markets.


Over the past few months, we’ve seen nearly flat global equity returns. We believe this pause, or breath, represents investors digesting data regarding three main issues: COVID, supply chains and inventory, and government action. Although we can’t know whether and how any of them will turn out, we believe investment returns will largely depend on how soon and how well we’re able to resolve these important issues.

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This presentation discusses certain investment products and is being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance.  Past performance is not a guarantee of future returns. Individual performance results will vary.

Wealth Architects, LLC (“Wealth Architects”) does not guarantee any specific outcome or profit. Any forward-looking statements or forecasts contained in the presentation are based on assumptions and actual results may vary from any such statements or forecasts. Some of the information in this presentation has been obtained from third party sources. While Wealth Architects believes such third-party information is reliable, Wealth Architects does not guarantee its accuracy, timeliness or completeness. Wealth Architects encourages you to consult with your investment advisor prior to making any investment decision.

Risk Disclosure

No investment strategy can guarantee a profit or protect against a loss. Please remember that all investments carry some level of risk, including the potential loss of principal invested. Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market. The securities of small capitalization companies are subject to higher volatility than larger, more established companies and may be less liquid.

Index Definitions   Note:  An investor cannot invest directly in an index.

MSCI ACWI – is a stock index designed to track broad global equity-market performance. Maintained by Morgan Stanley Capital International (MSCI), the index is comprised of the stocks of about 3,000 companies from 23 developed countries and 26 emerging markets.

MSCI EAFE – an equity index which captures large and mid-cap representation across 21 Developed Markets countries* around the world, excluding the US and Canada.

MSCI EM – Stands for Morgan Stanley Capital International (MSCI), and is an index used to measure equity market performance in global emerging markets.

Russell 1000 – A stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index.

Russell 2000 – a small-cap stock market index of the smallest 2,000 stocks in the Russell 3000 Index.

S&P 500 – is a free-float, weighted measurement stock market index of the 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.


Emerging Markets – An emerging market economy is the economy of a developing nation that is becoming more engaged with global markets as it grows. … Critically, an emerging market economy is transitioning from a low income, less developed, often pre-industrial economy towards a modern, industrial economy with a higher standard of living.


The Chartered Financial Analyst (“CFA®”) Designation:

The Chartered Financial Analyst (CFA) charter is a globally respected, graduate-level investment credential established in 1962 and awarded by CFA Institute — the largest global association of investment professionals. There are currently more than 138,000 CFA charterholders working in 134 countries. To earn the CFA charter, candidates must: 1) pass three sequential, six-hour examinations; 2) have at least four years of qualified professional investment experience; 3) join CFA Institute as members; and 4) commit to abide by, and annually reaffirm, their adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct.

High Ethical Standards

The CFA Institute Code of Ethics and Standards of Professional Conduct, enforced through an active professional conduct program, require CFA charterholders to:

  • Place their clients’ interests ahead of their own
  • Maintain independence and objectivity
  • Act with integrity
  • Maintain and improve their professional competence
  • Disclose conflicts of interest and legal matters

Global Recognition

Passing the three CFA exams is a difficult feat that requires extensive study (successful candidates report spending an average of 300 hours of study per level). Earning the CFA charter demonstrates mastery of many of the advanced skills needed for investment analysis and decision making in today’s quickly evolving global financial industry. As a result, employers and clients are increasingly seeking CFA charterholders—often making the charter a prerequisite for employment. Additionally, regulatory bodies in over 30 countries and territories recognize the CFA charter as a proxy for meeting certain licensing requirements, and more than 125 colleges and universities around the world have incorporated a majority of the CFA Program curriculum into their own finance courses.

Comprehensive and Current Knowledge

The CFA Program curriculum provides a comprehensive framework of knowledge for investment decision making and is firmly grounded in the knowledge and skills used every day in the investment profession. The three levels of the CFA Program test a proficiency with a wide range of fundamental and advanced investment topics, including ethical and professional standards, fixed-income and equity analysis, alternative and derivative investments, economics, financial reporting standards, portfolio management, and wealth planning.

The CFA Program curriculum is updated every year by experts from around the world to ensure that candidates learn the most relevant and practical new tools, ideas, and investment and wealth management skills to reflect the dynamic and complex nature of the profession.


CFP® and federally registered CFP (with flame design) marks (collectively, the “CFP® marks”) are professional certification marks granted in the United States by Certified Financial Planner Board of Standards, Inc. (“CFP Board”).

The CFP® certification is a voluntary certification; no federal or state law or regulation requires financial planners to hold CFP® certification. It is recognized in the United States and a number of other countries for its (1) high standard of professional education; (2) stringent code of conduct and standards of practice; and (3) ethical requirements that govern professional engagements with clients. Currently, more than 71,000 individuals have obtained CFP® certification in the United States.

To attain the right to use the CFP® marks, an individual must satisfactorily fulfill the following requirements:

  • Education – Complete an advanced college-level course of study addressing the financial planning subject areas that CFP Board’s studies have determined as necessary for the competent and professional delivery of financial planning services, and attain a Bachelor’s Degree from a regionally accredited United States college or university (or its equivalent from a foreign university). CFP Board’s financial planning subject areas include insurance planning and risk management, employee benefits planning, investment planning, income tax planning, retirement planning, and estate planning;
  • Examination – Pass the comprehensive CFP® Certification Examination. The examination includes case studies and client scenarios designed to test one’s ability to correctly diagnose financial planning issues and apply one’s knowledge of financial planning to real world circumstances;
  • Experience – Complete at least three years of full-time financial planning-related experience (or the equivalent, measured as 2,000 hours per year); and
  • Ethics – Agree to be bound by CFP Board’s Standards of Professional Conduct, a set of documents outlining the ethical and practice standards for CFP® professionals.

Individuals who become certified must complete the following ongoing education and ethics requirements in order to maintain the right to continue to use the CFP® marks:

  • Continuing Education – Complete 30 hours of continuing education hours every two years, including two hours on the Code of Ethics and other parts of the Standards of Professional Conduct, to maintain competence and keep up with developments in the financial planning field; and
  • Ethics – Renew an agreement to be bound by the Standards of Professional Conduct. The Standards prominently require that CFP® professionals provide financial planning services at a fiduciary standard of care. This means CFP® professionals must provide financial planning services in the best interests of their clients.

CFP® professionals who fail to comply with the above standards and requirements may be subject to CFP Board’s enforcement process, which could result in suspension or permanent revocation of their CFP® certification.

[1] Global equities represented by the MSCI ACWI Index. All investment and index returns are from Morningstar unless otherwise noted. Past performance does not guarantee future returns.

[2] US stocks represented by the S&P 500 Index.

[3] Foreign stocks represented by the MSCI EAFE Index (Net).

[4] Emerging-markets stocks represented by the MSCI EM Index (Net).

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[9] Source: Google Images

[10] The infrastructure bills may primarily impact US investment returns. The United States, however, represents roughly half of the global equity market cap. Source:

[11] August 2021 Investment Roundtable: Password: shoebox12