Index	1st Quarter	Past     1 YR
S&P 500 Large Cap Index	5.77%	53.77%
S&P Small Cap 600 Index	17.91%	92.65%
S&P Developed BMI International Index	5.06%	55.34%
S&P U.S. Aggregate Bond Index (total return)	-3.12%	1.14%
S&P Municipal Bond Index (total return)	-0.26%	5.29%
Dow Jones Equity All REIT Index	7.50%	29.98%
Dow Jones Commodity Index (total return)	9.29%	46.63%

Source: Dow Jones, data as/of 3-31-2021 (doesn’t include dividends unless noted). Here is a comprehensive list of returns.

So, What Took Place?

As you can see, 2021 is off and running and there is no shortage of excitement. Positive COVID news continues to come out with the prevalence of more vaccines, and consumer confidence is also rising. In turn, more people are getting back to work and the unemployment rate dropped to 6% in March.

Although most investors will recall stories related to the price of Gamestop and AMC, there were other stories making news. Besides the day-trading trends of meme stocks, we saw a rotation of tech stocks, a bitcoin spike, and volatility in bond prices (due to concerns of rising interest rates and expected inflation).

But most importantly is the fact that we are officially one year into the COVID rally. March of 2020 brought us swift market lows, as we saw fears from the pandemic spreading across our great nation. Fast-forwarding to the end of March 2021, and investors will be delighted by viewing their one-year performance of their investments. Looking at the above chart, you see many of the major stock indexes performing in one-year trailing performance in excess of 50%! Some of your individual holdings might have gained more than that!

The past 3 months have brought the best gains towards the energy and financial sectors, continuing the strength they had from the prior quarter. Utility companies and consumer staples were relative under-performers. We also have seen value stocks continue to gain ground versus the previously dominant growth stocks. The largest 1000 U.S. value stocks (“Russell 1000 Value”) gained 11.3% in Q1 versus the largest 1000 growth stocks (“Russell 1000 Growth”) which were up less than 1%.

This past quarter we’ve seen a new President (Biden) take office, and he quickly introduced a new round of stimulus and is working on an infrastructure package as I type this. Also, we continue to see a robust real estate market. Outside of New York and San Fran, we’ve seen strong appreciation in the housing prices due to lower houses for sale and low mortgage rates. The average time a house is on the market is only 20 days.

As the United States continues to rollout COVID vaccines, we’re seeing more of America opening up. I can’t help but think that many people are chomping at the bit to travel more, attend sporting events, and spend that stimulus money at bars and restaurants.

In interest rate news, the 10-year bond was yielding 1.74%. This is low by historical measures, but a nice jump higher from 2020 when it closed the year at .92%. The Federal Reserve says they are committed to an accommodative policy but inflation fears are emerging. This is certainly going to be a focus in the quarters and years ahead.

Other Thoughts

One question I get often: what will happen to stocks if interest rates rise? After looking at studies of past interest rate increases, there is no clear direction that stocks take. So for anyone attempting to make decisions based on rate movement, I remind them there is no clear pattern. I encourage people to remain invested and not be tempted to make changes to their allocations.

As the number of COVID cases (hopefully) continues to decrease, I think we’ll continue to see more upticks in travel-related themes. For our own sanity, it would be great to get back to somewhat normal activities like concerts, ball games, and BBQs with friends/family. I also think we’ll continue to see “value” stocks bridge the gap on “growth” stocks, although technology should continue to drive our economy for the foreseeable future.

Looking Ahead

Going forward, I do think we will be looking at tax hikes. With the record federal deficit reached in 2020, combined with the recent stimulus package and pending infrastructure package, higher spending usually results in higher taxes. So unless we see future spending cuts, the Biden administration looks to be on track to increase taxes on businesses and individuals. Tax planning will continue to be a focus of mine, and should be of all investors.

Some would argue that due to the fed’s “easy money” policies, most things are expensive (real estate, stocks, digital assets, bond prices, etc.). So one would have to consider if there will be a hard landing or more of a soft/gradual return to normalcy on the horizon.

While no one can accurately predict these things (tax rates, market direction, etc.) with consistency, I won’t try and be the first. I will remind investors that there is not always a direct correlation between the stock market and the economy. Sometimes to do their own things and for no rational reason. It’s always good to re-visit your portfolio allocation and risk-management strategies if you want to help control the amount of risk exposure you are taking on.

In thinking about the short-term, I continue to be optimistic. Corporate profits and economic growth could very well offset any returns to reasonable valuations. And although there may be some concerns that arise down the road, I think we remain positive for now.

Brandon

Disclaimer: This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the advisor. The information should not be construed as legal, tax, nor investment advice. Never make investment or financial decisions based on information provided here, without first consulting with your professional investment advisor. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Dow Jones. Data is taken from sources generally believed to be reliable, but no guarantee is given to its accuracy.