The Monthly Mosaic | September 2021


Hi, I’m Patrick Ryan, Head of Multi Asset Solutions here at Madison investments.

For the first time in about a year, we've seen volatility really pick up to the downside here in 2021. The S&P 500 itself is down just about three and a half percent for the month here as we talk today. And where we've seen that volatility emanating is a couple different things. So China, first and foremost, has been causing global volatility really more in the property sector there, I'm sure you've heard of Evergrande, being in the news, big property developer looking like it’ll potentially default on their bond issues. So that's been an issue for the markets. But I think it's also been a continuation of what we're seeing with inflation, is it transitory is it not transitory, still high expectations for earnings inflation starting to impact earnings reports, we're seeing a little bit more, and that's certainly on investor's minds. And all while we're entering into fed taper talk this month as well.

We still don't have an infrastructure deal. And we have high expectations, earnings growth expectations are high. So there's a little bit of a reckoning in our eyes to kind of reconcile what the market earnings are going to be where the markets going. And I think when you look at it even longer term, going back to 2018, you've seen a situation where S&P earnings growth expectations through 2021 are really only about 24%, higher than they were at the end of 18. But the markets up about 82%. So we've had a much larger rise in the equity markets than what we've seen, you know, really, from what the fundamental values put forward are. So, you know, we always thought there'd be a lot of volatility coming at the back half of the year and looking through the, you know, the final days of the third quarter here into the fourth quarter. You know, we certainly think that we could be in for some volatility, especially given if the Fed starts to pull liquidity out of the market.

Within our portfolios in August, we did dial back risk allocations just a little bit and raised a little bit of cash at that time. You know, what we are seeing throughout this year, again, in terms of the cyclical area starts to underperform, small caps, underperforming everything to us was pointing towards a growth slowdown. And then we started to have the Chinese rumblings with higher regulatory crackdowns. And so we took the opportunity that point in time to trim our international allocations, raise a little cash and be at position a little bit more defensively, kind of guarding for what we believe there's going to be this more volatile period that we're entering into at the at the conclusion of 2021.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”), which also includes the Madison Scottsdale office. MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

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