First Quarter 2021 Market and Economic Review


The lowest point for many of the global markets over the past year came toward the beginning of the Covid-19 pandemic — March 23, 2020. Just over one year removed from that date, domestic and international markets have made tremendous strides to recover and surpass the highs experienced just before the start of the pandemic. The U.S. economy has been helped by both the Federal Reserve – via low-interest rates and asset purchases – and by Congress through various stimulus packages.

Domestically, following the trend from Q4 of 2020, the first quarter of 2021 saw a continued shift to value stocks from growth stocks. U.S. large companies, as measured by the heavily weighted growth index S&P 500, rose 6.2% for the quarter. Comparatively, the equal-weighted S&P 500 index, which skews more towards value, was up 11.5%. The Russell 2000, which tracks the performance of U.S. small companies, posted positive returns as well with a 12.7% return throughout the quarter.

International markets have experienced lower market growth compared to domestic markets largely due to various delays in vaccine rollouts. Developed nations, measured by the MSCI EAFE, posted a 3.5% return for the quarter with emerging markets coming in slightly lower at 2.3%. Some of the countries hit hardest early in the pandemic are also now facing a third wave of infections. Germany, for instance, has extended their extreme lockdown measures through April 18th.

This quarter also saw mass investments into very volatile speculative vehicles like cryptocurrencies, Reddit/social media stocks, and special purpose acquisition companies (SPACs). We generally view these stocks like lottery tickets; you may occasionally win big, but most of the time you risk losing your shirt. Our investment analyst and technology strategist, James Sherrard, wrote more on these events; you can read that story here.

Oil and gas saw the biggest rise as economies reopened and travel demand rose. The Dow Jones U.S. oil and gas index showed a 30.2% increase during the first quarter after being down over 33% for 2020. As international countries take measures to slow the spread of the virus, however, there is concern that the rate of increase for oil and gas prices could slow again.

The bond market has been in the spotlight for much of the quarter due to expectations that the Federal Reserve will have to raise interest rates to slow down expected inflation. With the 10-year treasury rising from 0.95% to over 1.7% in a short period, the U.S. Aggregate bond market index experienced a -3.4% return over the same period.

2021 Quarter 1 Market Performance Benchmarks

* Each benchmark is allocated based on the assumed Risk Profile of underlying indexes.

**Benchmarks include a mixture of ICE BofA U.S. 3-month Treasury Bill Index, Barclays Global Aggregate X-U.S. Index, Barclays U.S. Aggregate Index, Barclays Multiverse Index., Barclays U.S. Credit Index, MSCI EAFE Net Index, Value Line Composite Index (Geometric), and the Barclays Global High Yield Index. These benchmarks are the same as those in the Risk/Return and Account Analytics sections of client quarterly performance reports. By comparing your portfolio’s return to the benchmark with the closest risk/return characteristics, you get a more accurate reading of portfolio performance than using a less diversified benchmark, such as the S&P 500 index.


President Biden’s inauguration came with a quick proposal and passing of a third stimulus package. The new $1.9-trillion package included direct payments to individuals of $1,400 per person, the continuation of a boosted federal unemployment benefit, and aid to help states distribute and administer vaccines. Notably removed from the Democrats’ package passed by the House was the controversial proposal to increase the federal minimum wage to $15 per hour.

GDP, as of the March estimate, continued its upward trajectory by increasing 4% on a seasonally adjusted basis. Much of the domestic economic expansion can be attributed to the three approved vaccines and the relatively smooth rollout. In the U.S., herd immunity is expected towards the end of this year allowing the economy to return to pre-pandemic levels of activity.

Unfortunately, the European Union (EU) countries have experienced a much different rollout of the vaccines compared to the U.S. Along with concerns over the safety of the vaccines, many countries have faced delays as they negotiated with pharmaceutical companies to acquire a lower cost. The U.K., having just finalized its official “Brexit” from the EU, took action similar to the U.S. and partnered with the pharmaceutical companies throughout the process which has led to almost half the population receiving at least one dose of the vaccine.

As confidence in the U.S. economy has grown, demand for safer investments, such as Treasury bonds, declined. When demand for Treasuries decreased, the price also declined, resulting in increased yields. The 10-year Treasury yield rose dramatically over the quarter due to this lack of demand. The value of the 10-year yield is key to the economy since it impacts mortgages, consumer/business loans, and is typically a guide for the Federal Reserve in raising or lowering interest rates.

The expectation is that as the economy continues to boom, inflation will occur, and once it exceeds the Fed’s target of 2%-3%, the Fed will have to take action to slow the growth to an acceptable level. For now, the Fed has indicated that there are no plans in the near term to intervene and tighten policy.

We continue to monitor portfolios, look for investments that meet our risk/reward targets for each of our clients, and make changes as necessary.