It has been an excellent start to the year, with markets chugging along following more government stimulus, continued vaccine rollouts, and further re-openings. For better or worse, the 242 paged American Rescue Plan and its 1.9 trillion dollars of additional stimulus became law on March 11, 2021. Of course, that will have to be paid for somehow, but so far markets have largely ignored that. For now, the focus has remained on the continued economic recovery from vaccine rollouts, business re-openings, and still easy money. The Fed expects the economy to expand by 6.5% this year, up from the 4.2% projected in December 2020. Despite the growth projection, Chairman Powell again stated the Fed would keep current rates in place.
Consumers have positive vibes: The University of Michigan’s consumer sentiment index for the US rose to a one-year high of 84.9 in March of 2021. It was also the largest increase in consumer morale since May 2013. Since 70% of GDP is consumer spending… well, you get the picture.
The S&P 500 hit its low point on March 23, 2020. Fast forward one year to 2021, the S&P 500 gained about 75% from the low. As you can see from the green line in the chart below, through April 13th, the S&P 500 is up 10.73% on the year, and international investments are up 6.06% (blue line). Not everything has been sunshine and roses. Inflation fears and rising bond yields created some volatility. Still, they have been no match for the stimulus, easy money, and the prospect of a “once in a generation” infrastructure package.
On the fixed-income side, US treasury yields finally fell towards the end of March after seven consecutive weeks of rising rates. Some of this may have been buying ahead of quarter-end. Similarly, after starting the year on a negative note, investment grade and high yield bonds also saw some positive performance toward the end of the month. Remember the basic pendulum. When bond yields go up, bond prices go down. When yields go down, bond prices go up. For the year, bonds are still negative, down 2.68% through April 13th.
Earnings season starts mid-April, and investors will be watching to see if the momentum from the last quarter has continued. Balance sheets will likely improve both in companies and households. We look for consumers to open up their wallets by spending their stimulus money and some of their record levels of savings.
We are certainly not out of the tunnel yet, but we have been looking at the light for a few months. Risks from COVID remain, infrastructure may not pass, taxes may increase sooner rather than later, and inflation, despite the Fed’s best efforts at reassurance, may turn out to be higher for longer than anticipated.
Markets have been responding well for the past year. If you haven’t already, take the opportunity to review your investments, risk, and comfort level after experiencing the volatility that came with the crazy 2020. It is a good time to rebalance. As always, we are here for you. Shoot us an e-mail at firstname.lastname@example.org with any questions or concerns.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. Past performance is not indicative of future results.