The Quarter in Review | 1Q 2021
TOPLINE TAKEAWAYS FOR FIRST QUARTER, 2021
The global economy continued to recover in Q1.
Ongoing hyper-accommodation by most major central banks combined with the U.S. fiscal stimulus package passed in December – on top of the previous packages – spurred record U.S. retail sales and strong global trade.
U.S. economic reports have generally been very strong.
The $1.9 trillion in additional fiscal stimulus passed in March is raising growth expectations further.
FIRST QUARTER RETURNS
U.S. markets were up +6.35 percent for the quarter. Across the board, for the second quarter in a row, Value and Small Cap stocks outperformed Growth and Large Cap stocks by substantial amounts.
International Developed and Emerging Markets continued their recoveries, up +4.04 and +2.29 percent respectively. Developed markets had positive returns in 18 of 23 countries. Emerging Market country returns were more mixed with 17 positive for the quarter and 10 negative.
A globally diversified portfolio of 50/50 equities and fixed income was up 2.34 percent for the quarter.
FIXED INCOME
With the economy already well into a sharp recovery, the confluence of more fiscal stimulus, continued Fed accommodation, rising federal deficits, and worries about inflation conspired to push longer-term rates sharply higher in Q1. The yield on the 10-year T-note increased by 81 bps to 1.74 percent. This upward movement in rates caused a broad sell-off in the bond market with the Bloomberg U.S. Aggregate Bond Index declining -3.37 percent for the quarter.
ALTERNATIVE INVESTMENTS
Real Estate Investment Trusts (REITs) experienced a strong quarter, up 10 percent as passage of the $1.9 Trillion recovery package abated worries about delinquencies and defaults. Despite concerns about rising inflation, gold continued its fall in Q1 as global and financial risks receded with the rollout of vaccines. Inflation was clearly evidenced by rising prices in oil, up +28 percent in the period. The Bloomberg Commodity Index experienced another solid quarter, up +6.92 percent for the period. This is on top of the +9 percent increase in the fourth quarter.
WHAT TO MAKE OF CRYPTOCURRENCIES AND BITCOIN
Bitcoin continues to grab the headlines as a result of its escalating value. That in turn raises people’s interest and a lot of questions. This article To Bit or Not to Bit: What Should Investors Make of Bitcoin Mania? from Dimensional Funds sheds some much-needed light on what’s happening and why, and how investors should think about any digital currency in context of other investments and their overall goals.
SUMMARY / LOOKING FORWARD
The first quarter looks to be the turning point, both for the pandemic here in the U.S. and for the economic damage it has caused. While risks remain, especially in the short term, the significant progress made over the last few months, the culmination of a year-long effort, hopefully are signaling the worst is behind us.
It’s been four months since the FDA approved the Pfizer, Moderna, and Johnson & Johnson vaccines. In this short amount of time more than 150 million doses of the vaccine have been administered in the U.S., and we have seen a rapid improvement in the trajectory of the pandemic. There has been a significant drop in reported infections, hospitalizations and deaths, which has allowed for certain regions to reopen. Assuming we stay on this trajectory, we could see a continued return of jobs and potentially the unleashing of huge pent-up demand from consumers for services.
Monetary and Fiscal policy continues to be set at the most accommodating and stimulative levels, as evidenced by historic low interest rates as well as ongoing cash distributions to individuals and businesses. The employment situation continues to improve with the unemployment rate hovering around six percent.
In reflecting on the last year, there is no doubt we all learned something about ourselves, our work, and what truly matters. This was unchartered territory for everyone. For us, one bright spot throughout a challenging year was how the timeless investing and planning truths that we continuously speak of were reinforced:
Have an Investment PLAN
Align your portfolio from both a RISK and GOALS perspective
Understand HOW you are invested and WHY
Stay DISCIPLINED and PATIENT
Remember, we’re here to help. This also is where the time invested upfront with each of you shows its value. We recognize that each client’s situation is unique and incorporates different factors into their investment and financial plan. Formulating a solid and adaptable financial plan together and discussing liquidity, cash flows, and reserves, provides the solid footing needed for times like these with many changing facets.
We are grateful for the opportunity to work with each of you. As always, if you have any questions or concerns about current market trends and the impact on your personal situation and plan, please contact us and we would be happy to discuss.
We wish you, your families, friends, and colleagues all the best as we look to Spring and warmer weather.
Please follow this link to read the complete Quarterly Market Review | 1Q 2021.