Each month, Allied Financial Advisors, LLC compiles a comprehensive market update. Here are our reports:
Clearview Portfolio Consulting April 2021 Market Recap
Gross domestic product grew at a seasonally adjusted 6.4% for the first quarter bringing the US economy within 1% of its peak, prior to the pandemic. Economic reopening in the US continues to add confidence behind inoculations, falling coronavirus case numbers and fresh stimulus dollars in consumers’ pockets. Along with the resurging US consumer, government spending on aid to businesses, vaccines and stimulus has helped fuel economic growth. According to the Bureau of Labor Statistics, the unemployment rate declined to 6% during April as businesses plan for the post pandemic recovery.
The S&P500 gained 5.34% in April, pushing its return for the year to 11.84%. Real estate (+8.28%), communication services (+7.85%) and consumer discretionary (+7.1%) were the best performing sectors following strong corporate earnings reports. While all major stock sectors were positive for the month, energy cooled of gaining just 0.59% after a strong rebound from last year. Growth stocks came back into favor with the Russell 1000 Growth up 7.69% vs. 3.95% for the Russell 1000 Value. Strong earnings reports from Apple, Google, Facebook and Amazon attracted investors back to growth, after a rotation towards traditional value names over the past 6 months.
International markets continue to lag the US with the developed MSCI EAFE Index gaining 3.01% in April and 6.59% for the year. Emerging markets +2.49% in April have been hurt by fresh coronavirus outbreaks in Latin America and India. European stocks fared well +4.54% with news of lifting restrictions and curfews in the coming months. The Eurozone economy remains sluggish and may even contract in the first quarter according to T.Rowe Price. Asian markets gained 1.03% for April and are up 3.34% for the year.
Investment grade bonds saw their first positive month of the year with the Bloomberg Barclays US Agg Bond Index up 0.79% for April. Interest rates fell for Treasury Notes and Bonds after a steep climb to start the year. Investors have been worried about inflation resulting from the strong economic recovery and massive amount of liquidity in the system. The rise in gasoline prices moved inflation higher than expected in March, but still within the Federal Reserve’s target. Limited supplies in consumer goods like bikes and cars, along with building materials, could continue to push prices higher until supply chains are back online to meet the demand. The Fed maintained its accommodative stance and will likely taper asset purchases before it raises rates to contain inflation beyond their target.
Sources: Morningstar Direct, Wall Street Journal, BLS, T. Rowe Price
Clearview Portfolio Consulting March 2021 Market Recap
Equities drove higher in March, ending a strong first quarter to start the year. The S&P500 gained 4.38% for the month and 6.17% for the year as the economy continues to slowly get back on track. Utilities led the way gaining 10.51% after a bruising February where rising rates hurt many dividend paying stocks. All sectors of the S&P500 were positive with Information Technology the worst performer (+1.69%) as elevated valuations and higher rates weighed on returns. Investors have shifted away from sectors that benefited most during the pandemic as the trend towards value over growth stocks continued in March with the Russell 1000 Value gaining 5.88% vs. 1.72% for the Russell 1000 Growth. This rotation typically occurs during the early stages of an economic recovery where energy (+30.85%), financials (+15.99%) and industrials (+11.41%) have led the market higher in the first three months of 2021.
Inflation concerns creeped back into the minds of investors from the Fed’s easy monetary policy, rising budget deficits and pent-up demand. Interest rates have moved significantly higher as a result, with the 10yr Treasury yield at 1.75% vs. 0.92% to star the year. However, there is slack in the economy with unemployment still north of 6%. Wage inflation, usually a requisite for price inflation, may be unlikely until we achieve a tighter labor market. The rise in mid- and long-term Treasury rates have caused bond prices to fall. The Bloomberg Barclays US Aggregate Bond Index dropped 1.25% in March and is down 3.37% for the year.
International stocks have lagged the US markets to start the year with fresh lockdowns in Europe. Rising COVID cases coupled with a sluggish vaccination distribution have given investors pause across the Eurozone. Asian markets were down in March with the MSCI China index dropping 6.28%. Chinese policymakers indicated their intent to remove stimulus measures to prevent asset bubbles.
The outlook for the remainder of the year for investments, as with any other year, will largely be determined by the state of the economy. With equities performing so well over the last 12 months the market could be vulnerable to near term setbacks. Diversified portfolios can mitigate the risks of asset bubbles in sectors and asset classes. Fortunately, the path toward herd immunity from this bruising virus only gets closer by the day.
Sources: Morningstar Direct, Wall Street Journal, Charles Schwab
Clearview Portfolio Consulting February 2021 Market Recap
The vaccine rollout has been steadily moving forward, with the addition of a Johnson & Johnson vaccine to the mix. According to the Center for Disease Control, as of February 24th, over 66 million total COVID-19 vaccine doses have been administered. This pushed stocks to all-time highs in February as expectations for a sustained economic recovery remain strong. Although there were some bouts of volatility during the month, the S&P500 gained 2.76% while the small cap Russell 2000 advanced 6.23%. Value stocks (which lagged the broader market significantly in 2020) were the strongest gainers. The Russell 1000 Value posted a 6.04% gain while the Russell 1000 Growth lost 0.02%. Energy (+22.66%) was the best performing sector as oil and natural gas prices rose. Financials (+11.49%) and industrials (+6.89%) were also top performers for February and among the worst hit during the selloff last year.
Treasury yields spiked in February as the yield on the 10-Year topped 1.51%. Rates moved higher on optimism about the US economy via vaccine distribution but also on future inflation worries. Loose monetary policy and a massive fiscal package could lead to higher prices as the economy improves. Bond investors despise inflation and require additional compensation if they anticipate lower purchasing power when they are repaid. The Barclays US Aggregate Bond Index dropped 1.44%, marking its second worst monthly return in the past 5 years. Treasuries (-1.81%) were hit the hardest, while corporates (-0.81%), asset-backed securities (-0.14%) and high yield +0.37% held up best.
International markets were up in February, with the MSCI EAFE index advancing 2.24%. Emerging markets posted a 0.76% gain with losses in Latin America (-2.99%) and China (-1.04%). US investors with international holdings may see attractive relative returns if the global economy expands and the US Dollar continues to decline.
The US economy remains fragile but is showing signs of strength. Unemployment is still relatively high at 6.3% according to the BLS. The pent-up demand in travel and leisure services should help those industries as more of Americans get vaccinated and willing to travel through the spring and summer. Investors should be mindful that this is more of a restart of the economy from a forced shutdown than a recovery from a traditional recession.
Sources: Morningstar Direct, Wall Street Journal, First Trust
It turns out that the stock market is not immune to the coronavirus. After a small drop in January when the coronavirus first hit headlines and briefly panicked investors, February began with a rebound in equity prices as it appeared the virus had been contained. New cases in Europe and Asia had investors re-price the risk that global economic growth may be subdued in the near term. This caused a major sell-off in stocks last week, with most major indices dropping 10% or more. It was the worst week in the markets in over a decade. Indiscriminate selling forced all sectors in the S&P500 to decline in February, with communication services (-6.34%) and real estate (-6.34%) faring the best while financials (-11.19%) and energy (-14.56%) being hit the hardest.
While the coronavirus captured the headlines and appears to be the primary reason for the dramatic drop in stocks, there were two other minor factors at play. Only two weeks ago, stocks were trading at all-time highs. The S&P 500 gained 31.49% last year so stocks may have gotten a bit frothy from a valuation standpoint. Short term traders were likely looking for a reason to take profits and some risk off the table and sometimes selling begets more selling. A second factor at play has been the rise of Bernie Sanders as the potential democratic front-runner for the presidential election this fall. Regardless of which aisle you sit from a political standpoint, stocks in healthcare, financials, energy and technology have come under pressure based on his campaign rhetoric.
The fixed income markets proved to be a safe haven during the sell-off. The investment grade bond market gained 1.8% for the month as Treasury bonds rallied. High quality mortgages (+1.04%) municipals (+1.29%) and corporates (+0.99%) did what we had hoped and helped to stabilize balanced portfolios. High yield bonds, which tend to move with stocks, lost 1.45%.
In times of economic uncertainty, it is always important to remember that panic is not an investment strategy. Even the most astute investors and portfolio managers cannot time the market (selling and buying back in at a later date) with any degree of accuracy and consistency. The biggest issue right now is uncertainty. The market simply does not like uncertainty so until we get a better idea on what the long-term ramifications of how it affects everything from global supply chains to consumer spending to our survival, we will likely see continued pressure and volatility over the near term.
Sources: Morningstar Direct, Wall Street Journal, T.Rowe Price
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