Global Economies and Market Update

The first quarter of 2021 was characterized by transition. Businesses slowly resumed reopening as restrictions eased. The COVID-19 vaccine rollout has been ongoing and, as of the end of March, has reached an estimated 150m doses throughout the country. 21.9 percent of the U.S. population is now fully vaccinated, according to the Centers for Disease Control and Prevention (as of April 12, 2021).

Capital markets moved higher due to news of both positive vaccine progress and the $1.9T stimulus package passed in March. The level of government stimulus during the pandemic has been noteworthy. Stimulus injected since the beginning of December 2020 is equivalent to ~14 percent of pre-crisis U.S. GDP. Since the pandemic began, the U.S. government has injected nearly $6T worth of stimulus in various forms. The American Jobs Plan announced at quarter’s end to fund infrastructure improvements might represent another $2.2T in potential stimulus.

Value stocks, which tend to have healthy dividends and comparatively low valuations, continued to be in favor in the quarter. The Russell 1000 Value Index returned 11.2 percent in the quarter compared to the 0.9 percent return of the Russell 1000 Growth Index. NASDAQ reports that the Value Index outperformance was the largest in 20 years. Large cap stock performance trailed that of smaller companies as investors rotated into other holdings that will benefit from the pandemic’s recovery. Industrial and financial stocks have returned double digits so far in 2021, while the energy sector has rallied over 30 percent in anticipation of more normalized demand.  Non-U.S. markets mirrored U.S. results with value stocks gaining mid-single digits compared to less than 1 percent returns in Non-U.S. growth stocks.

Economic data in the U.S. continues to be mixed. Unemployment data has improved; the Federal Reserve’s estimates now expect the unemployment rate will fall to 4.5 percent in 2021 and 3.9 percent by 2022. GDP estimates have similarly brightened. In March, the Fed raised its GDP growth expectations to 6.5 percent for 2021, up substantially from the 4.2 percent figure released at its previous meeting in December. This positive news was offset by expectations of higher future inflation, which is projected to rise to 2.4 percent in 2021. While this is an increase, inflation slightly above 2 percent still is well below the 60-year U.S. average inflation rate of 3.7 percent. Investors drove bond yields higher throughout the first quarter as they sought compensation for higher expected levels of inflation. The benchmark 10-year Treasury yield closed the quarter at over 1.7 percent, up from 0.92 percent at the end of 2020.

Looking Ahead

2020 was a year of unprecedented economic turmoil, but 2021 has shown early signs of promise. Employment data has improved, businesses are returning to more normal operations, an ongoing global vaccination campaign is underway, and large government stimulus packages continue to give investors reason for cautious optimism.

What Does This Mean For You?

We believe 2021 offers you a fresh opportunity to evaluate your financial picture. We believe prudent diversification and careful planning are key to navigating challenging environments, including the recovery that we believe is now well underway.

We view the current environment as an opportunity to revisit your strategic portfolio allocation, take another look at your cash needs, make portfolio shifts to minimize tax liability, and review your long-term goals. If you have any questions or would like to meet and review your financial situation, please call our office at 855-855-5455 for a virtual appointment or contact us directly!

Data sources:  Bloomberg, NASDAQ, Callan Independent Adviser Group

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