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Market Highlights Q1 2021
In general, the first quarter of the year bode well for investors. The small caps of the Russell 2000 gained nearly 12.5% and the Global Dow climbed 9.4%, while the large caps of the Dow rose 7.8% and the S&P 500 posted solid gains of 5.8%. Tech shares, which had driven the market for much of 2020, slumped during the quarter, but still gained enough ground to push the Nasdaq up by almost 3.0%, while the yield on 10-year Treasuries climbed more than 80 basis points. Year to date, the Russell 2000 is well ahead of its 2020 year-end closing value, followed by the Global Dow, the Dow, the S&P 500, and the Nasdaq.
As we ease into Q2, optimism abounds, albeit cautiously. On March 11th, the $1.9 trillion American Rescue Plan was enacted to help relieve some of the economic damage the pandemic brought to families and small businesses. Following this success, the administration has proposed a $2.3 trillion American Jobs Plan. Also known as the infrastructure plan, the proposal calls to rebuild America’s crumbling infrastructure and make the US more competitive with China and other emerging economies by addressing a broad range of projects—from road repairs and electric vehicle stations, to public school upgrades and training for the clean-energy workforce.
The American Jobs Plan is as ambitious as the Interstate Highway Act of 1956 and as broad in purpose as the Marshall Plan that rebuilt Europe after WWII. While those who don’t favor the plan express concerns about debt, inflation, and pay-fors, many (myself included) see it as promising.
Anticipating passage of most of the bill’s provisions, analysts have increased earnings estimates for S&P 500 companies by a record 6.0%. Combined with the fact that unemployment rates have been trending lower since the start of the year, it seems that the US economy has weathered its most significant challenge since 2008.
With the stock market seemingly stable and the stage set for economic growth, eyes are now on the rise of longer-term interest rates. The Fed continues to hold down short-term rates to essentially zero, resulting in a steepening yield curve (often an indicator of economic health) and higher returns on longer-term bonds, which have been stagnant for some time. While this environment could dampen stock prices, the pandemic reinforced a common law of successful investing: trying to predict the future is a fool’s game. The soundest investment strategy moving forward is one that focuses on diversification and, above all, meeting your personal income needs. Our team has that covered. If we anticipate any bumps in the road, we’ll be sure to let you know so we can adjust your plan together.
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