2nd Quarter 2021 MARKET COMMENTARY

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The global recovery continued in the second quarter both in the United States and globally, which led to another strong quarter for commodities. This was reflected in the PIMCO Commodity Real Return Strategy Fund, which gained 14.9% for the quarter and is up 24.8% year to date. The increase in commodity prices and other consumer prices increased talk about inflation, specifically if the movement higher in prices is transitory or the start of higher inflation (higher prices) that will continue for the foreseeable future.  This is important because inflation is a key part of the dual mandate that impacts decisions at the Federal Reserve and impacts how quickly the Federal Reserve will raise the fed funds rate.  It also lowers the purchasing power of the dollar.  If inflation continues at an elevated pace, it could lead the Fed to raise rates faster than expected, which could hurt the recovery in the United States as well as lower bond prices, particularly intermediate and long-term bonds.  Despite this talk of inflation, interest rates in the US actually moved marginally lower this quarter, leading to higher bond prices.  This led to modest gains for most US bond funds for the quarter, including the Wells Fargo Government Securities Fund +0.9% and the Wells Fargo Core Plus Bond Fund +2.4%. Yields have continued to move lower in the 3rd quarter with the US 10-year treasury currently trading at 1.20%.

Looking ahead, the economy looks positioned to continue a strong recovery.  As the economy opens and more Americans go back to work there will be a continued push in Washington from the Biden Administration for additional stimulus including a large infrastructure package.  These influences will provide a tailwind for equity markets in the 2nd half of the year. With that said, there will almost certainly be bumps along the road.  This starts with Covid-19, particularly the Delta variant and future variants that may have resistance to the major vaccines in use.  Globally, the distribution of vaccines during the 2nd half of the year and into 2022 will also be a challenge, and if not executed effectively could slow global growth in 2021 and 2022. Additionally, in Washington there is a risk that additional deals will not be done or at a smaller scale that could slow short term growth.

2nd QTR                    1 YR                        3YRS                  5YRS

Stable Income                                     3.85%                 6.15%                      4.42%                 4.94%

Conservative Income                          5.49%                7.20%                      5.58%                 6.32%

Traditional Pension                             9.25%                9.37%                     7.49%                 8.61%

Equity Oriented                                 12.03%                 9.19%                     7.88%                 9.43%

NERT Model Allocation – Choices for every investor

The NERT model allocations are designed to help participants build diversified allocations to capture the major market sectors and a variety of management styles. They are offered to aid typical participant needs for diversified, risk-adjusted allocations. NERT rebalances allocations on a regular basis attempting to keep a consistent risk and asset posture. The allocations will maintain some exposure even in underperforming classes. Diversification, by definition, means not all assets can have positive performance every period. The NERT model allocations are designed to allow any investor to participate in proven ways to reduce risk and improve returns over longer periods.

As communicated in April2020, given the current limitations on withdrawals from the Principal U.S. Property Fund, we created model allocations that removed the Principal U.S. Property Fund. The quarterly and1-year return for these new allocations is listed above, however, a portion of the allocation remains within the Principal US. Property Account.

Andrew Casteel, CIO, CFP

Acorn Financial Advisory Services, Inc.