A lot happened during the first quarter of 2021. January ushered in a power shift in Washington which was followed by a $1.9 trillion stimulus package. In addition to the stimulus package and continued monetary policy support from the Federal Reserve, other economic growth propellants include substantial progress on vaccine supply and distribution as well as historic levels of both consumer and corporate cash on hand waiting to be either spent or invested. All of these factors point towards a powerful economic recovery over the next year.
Financial markets were mixed during the quarter. Stocks encountered volatility but powered ahead as the domestic stock market was up about 6% and foreign stock markets were up 3 to 4%. Small cap stocks outperformed large caps, and for the first time in recent history value/cyclical stocks (banks, energy, industrials, etc.) outperformed growth stocks, especially the technology sector, which sold off during the quarter.
The bond market took a hit during the first quarter, down 3-4%, due to a spike in long-term interest rates. However, rates remain historically low, and the Fed has signaled strongly that it will use all of its tools to keep rates in check as the economy and the job market recover from the pandemic. Despite the temporary weakness in the bond market, we remain committed to our fixed income allocations. It was only a year ago that the stock market lost 34% of its value during a five-week period. During that selloff, quality fixed income investments held up relatively well.
The mixed bag of investment returns noted above make an excellent case for our approach of developing and maintaining diversified portfolios through all market cycles. Diversification has often been called “the only free lunch in investing” but it only works when executed with discipline.
We appreciate your support and encouragement. Please let us know if you have any questions or if there is anything we can do for you.
Matt and Andrew