Spring 2021 Quarterly Newsletter
Author: Patrick Bobbins, CFA®CIMA®
2021 started out with optimism on the back of the economy reopening and vaccine rollouts. The new year also started out opposite from 2020 with respect to relative performance within the U.S. Equity markets. Large value companies (+11%) outperformed large growth companies (+2%), which also applies to both small and mid- size companies. We have started to see interest rates move higher as well with the 10-year Treasury finishing the quarter yielding 1.74%, which hurt the overall bond market (-3.3%).
Overall equity valuations remain stretched and further increases in interest rates due to higher inflation expectations are likely to keep a lid on growth-oriented equities. We continue to view this as a positive environment for companies more tied to the physical economy and commodities.
The first quarter also brought with it the passing of the $1.9 trillion COVID-19 relief bill. We do not believe this will be the last of government stimulus measures as information has started to come out with respect to a possible $3 trillion infrastructure- focused bill. The Federal Reserve has also clearly indicated they are in favor of letting inflation run higher in order to average 2% over a full cycle. The point being that government stimulus programs are unlikely to end anytime soon.
Overall volatility, as measured by the VIX, finally dipped below 20 for the first time in over a year with the (VIX) average volatility in 2021 falling to 23.2 compared to almost 30 for calendar year 2020. Our outlook remains cautious for the remainder of the year. The market seems to be pulled in two directions by relatively high valuations on one side and stimulus measures along with an economic recovery on the other.
This article was featured in our Spring 2021 Quarterly Newsletter available here:
The views stated in this letter are not necessarily the opinion of Cetera Advisor Net- works LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.Market Update, Market Volatility, Quarterly Newsletter