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April 2021 Market & Economic Update

April 2021 Market & Economic Update

 

04/12/2021

 

www.SCapitalAdvisors.com

 

March was a volatile month for stocks and bonds. With vaccinations in the US taking place at a rapid pace, optimism about the reopening of the economy sent interest rates higher on 10-year US Treasury bonds. Higher rates were positive for cyclical sectors like banks and transportation and industrials. But higher rates

sent bonds lower. Higher rates are also negative for high valuation tech stocks. The tech heavy Nasdaq declined for the month while the S&P 500 and the Dow Jones index were up for the month.

Long term US treasuries, as measured by the fund symbol TLT declined 3.98% for the month. Overall US Treasury bonds had their worst quarter since 1980 (source: cnbc.com) Rates rise when bonds are sold and vice versa.


Year 2021 Returns (as of March 31)

US (S&P 500, Symbol: SPY)                              Up 5.8%

The Dow Jones (Symbol: DIA)                          Up 7.8%

The NASDAQ Composite                                  Up 2.8%

Europe (Euro Stoxx 50, Symbol: FEZ)              Up 6.7 %

Emerging Markets (Symbol: EEM)                   Up 3.4%

Bonds (Total Bond Index, Symbol: BND)          Down 3.5%

Gold (Symbol: GLD)                                           Down 10.3%

 

(source: cnbc.com)

 

Much of the Treasury bond selloff was fueled by steadily increasing inflation expectations. US consumers are sitting on the highest ever levels of cash and there is pent up demand for services such as travel and leisure.

Coupled with a new Biden administration infrastructure package and increasingly positive vaccine news, the bond market is anticipating higher inflation. But the Fed has reiterated that it thinks such inflation will be transitory.  So far this month interest rates have leveled off and stopped the upward accent that began in January.  This has been positive for big tech stocks and they have helped propel the S&P 500 to all time highs. The S&P 500 hit an all-time high last Friday to finish at 4128. The index hit a low of 2191 last March 23rd at the nadir of the Covid market crash.  And as of today, the tech heavy Nasdaq is only 2% from its all time high reached in mid-February. (source: investors.com)

The US economy is expected to grow this year faster than anytime over the past two decades. And investors’ mood has improved markedly with the coming spring. Qualitative assessments also indicate waning fear and increasing ebullience among investors. The apparent complacency can make contrarians uneasy. The worries are higher inflation from rapid growth, along with new variants of the virus. Also, a much faster than expected recovery in the jobs market, while wished for by all, could move up the eventual withdrawal of monetary stimulus sooner than anticipated.

With earnings season beginning next week the market will have an opportunity over the next few weeks to price in the appropriate valuation.   Corporate profits for the first quarter and their guidance for the second quarter will be key to performance going forward. But historically when the first quarter is up at least 5%, the remainder of the year is positive. Today Bloomberg.com reported:

The S&P 500 Index rose just enough in the first quarter to point toward further gains later this year, according to Ryan Detrick, chief market strategist at LPL Financial LLC. He cited the S&P 500’s track record after first-quarter advances of 5% to 10%, in line with this year’s 5.8% increase. There were 15 instances between 1950 and 2020, according to data compiled by Bloomberg. The S&P 500 rose in the rest of the year 13 times, and had an average nine-month gain of 12.4% for all 15

Obviously, past performance is not indicative of future performance. In the meantime, should you have any questions or would like to discuss your situation please don’t hesitate to let us know so we can set up a call or video conference or a meeting if need be.


 


Neal W. Mufti, CFP®                                                        M. Mike Iftaiha, CFP®

Managing Director                                                             Financial Advisor

Opinions expressed here are those of the authors. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Past performance is not a guarantee of future results. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs and expenses.

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S&P 500: The S&P 500 is an unmanaged index comprised of 500 widely-held securities
considered to be representative of the stock market in general.
DJIA: The Dow Jones Industrial Average (DJIA) is a price weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange.
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The iShares MSCI Emerging Markets Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in emerging markets, as represented by the MSCI Emerging Markets Index.
Total Bond Market (BND) is an exchange-traded fund (ETF) created by Vanguard to track the performance of Barclays U.S. Aggregate Float Adjusted Index, which is a broad, market-weighted bond index.
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