FILTERS
Mixed Results in June; Tech Stocks Continue to Outperform

U.S. Stocks Notch Optimistic Gains in First Quarter of 2021

  • 03.31.21
  • Markets & Investing
  • Article

March 31, 2021

Domestic equities gained ground for both the month and quarter, with additional economic tail-winds provided by the vaccine rollout and stimulus bill.

Investors may have been hoping for March to go out like a lamb, but it seems the month simply marched on. The big news came with the passage of the latest stimulus bill, which injected trillions into the economy, and the release of the Ever Given, a giant container ship that had gotten stuck in the Suez Canal, which hampered shipping worldwide. The continued progress of the vaccine rollout and the passage of the stimulus bill created major tail-winds for the economy, reflected by rising gross domestic product estimates, a further move up in equity prices and a steady rise in interest rates, explained Larry Adam, Raymond James chief investment officer. 

The yield on the 10-year Treasury hit its highest level in more than a year, yet domestic equity markets managed to gain ground for both the month and the quarter, seemingly on the hope of strong economic activity the rest of the year.

Federal Reserve policy remains accommodative and another round of fiscal stimulus has further boosted sentiment. Supply chain issues have added to cost pressures for manufacturers, and we may see some increase in inflation as the economy reopens, but inflation expectations remain firmly anchored at 2%, the Fed’s long-term goal. The Consumer Price Index is expected to rise to over 3% for the 12 months ending in April, but that merely reflects a rebound from the low figures of a year earlier, notes Chief Economist Scott Brown.

Within equities, the market has seen gains across sectors. This bodes well for intermediate-term performance. Outsized gains have come from areas most aligned to an economic reopening, while last year’s best performer, Technology, has largely consolidated its prior strength, acting as a source of capital for the reflation trade, explains Joey Madere, senior portfolio strategist, Equity Portfolio & Technical Strategy. He remains broadly positive on equities, but investors should not be surprised if the historically strong gains experienced over the past 12 months become more normal (with normal pullbacks) over the next 12 months. Given that positive view, weakness could represent buying opportunities. 

 

  12/31/20 Close  

  3/31/21 Close  

Change
  Year to Date  

  % Gain/Loss  
Year to Date

DJIA

30,606.48

32,981.55

+2,375.07

+7.76%

NASDAQ

12,888.28

13,246.87

+358.59

+2.78%

S&P 500

3,756.07

3,972.89

+216.82

+5.77%

MSCI EAFE

2,147.53

2,216.06

+68.53

+3.19%

Russell 2000

1,974.86

2,220.52

+245.66

+12.44%

Bloomberg Barclays
U.S. Aggregate Bond Index

2,392.02

2,311.53

-80.49

-3.36%

Performance reflects price returns as of market close on March 31, 2021. MSCI EAFE and the Bloomberg Barclays Aggregate Bond figures reflect March 30, 2021, closing values.

Investing in infrastructure

Market attention will focus on the policy specifics of President Biden’s infrastructure and recovery plan – formally unveiled on March 31 – which is paired with tax changes as revenue-raising measures. We anticipate robust debate around the corporate tax rate and tax increases for high-income earners. Key spending provisions include $621 billion for transportation infrastructure, $180 billion for R&D, $174 billion for the electric vehicle value chain, and $111 billion for water infrastructure. Needless to say, this proposal represents a starting point for what will be complex negotiations in Congress.

Eyes on inflation

The Federal Open Market Committee chose to leave the fed funds rate unchanged in its March announcement. Fed Chair Jerome Powell emphasized that a near-term spike in inflation is expected but will likely be temporary and not the start of a long-term trend. Powell repeated that the central bank won’t raise short-term interest rates until it is a lot closer to its inflation and employment goals. He also indicated that the rise in Treasury yields so far in 2021 has been orderly and is not a concern at this time.

Volatility remains strong as uncertainty flourishes in terms of inflation, yields and business growth. Investors are not being rewarded for credit risk or duration risk, which makes high-quality intermediate duration bonds appear more attractive.

International markets

European markets generated modest gains for the month amid enhanced stimulus efforts, despite uneven progress for vaccinations and continuing COVID-19 challenges. Asian markets generally fell during March, and a broader range of emerging markets continue to exhibit a number of challenges even if most anticipate COVID-19 vaccine progress.

The bottom line

The faster arrival of vaccines as well as the passage of an almost $2 trillion stimulus bill should boost GDP growth expectations for the rest of the year. Last, but not necessarily least, note that the IRS has extended the tax-filing deadline for individuals to May 17.

Your advisor will continue to share any new developments that affect your financial plan. In the meantime, please reach out to them with any questions.

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Raymond James Chief Investment Office and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes. The performance mentioned does not include fees and charges which would reduce an investor’s returns. Small cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

TAG CLOUD

Important Disclosures

Saling Wealth Advisors is an SEC registered investment adviser located in Louisville, Kentucky. Saling Wealth Advisors may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Saling Wealth Advisors’ web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Saling Wealth Advisors’ web site on the Internet should not be construed by any consumer and/or prospective client as Saling Wealth Advisors’ solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Saling Wealth Advisors with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Saling Wealth Advisors, please contact the state securities regulators for those states in which Saling Wealth Advisors maintains a registration filing. A copy of Saling Wealth Advisors’ current written disclosure statement discussing Saling Wealth Advisors’ business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Saling Wealth Advisors upon written request. Saling Wealth Advisors does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Saling Wealth Advisors’ web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

This website and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.