March Market Recap
April 1, 2021
Some anniversaries are easier to remember than others.
March 23 is a significant one. It marks the date of the bear-market bottom established one year ago, when the S&P 500 had fallen 35% and COVID-19 was still new to our vocabulary.
You would have been laughed out of your local investment club (or your first Zoom happy hour) at the time for suggesting stocks were on the verge of a 70% rally in the year to come. And yet 12 months later, this is where we are.
Better than 70% actually if we include gains from the final week of March. The S&P finished the first quarter of 2021 on the verge of hitting 4,000 for the first time. The Dow Jones Industrial Average recently eclipsed 33,000. And the NASDAQ, despite cooling its jet-like acceleration in recent months, has nearly doubled from its March 23, 2020 low.
In a complete reversal from a year ago, every one of the 11 sectors in the S&P 500 moved higher in March. Utilities (+10.5%) and Industrials (+8.9%) climbed the most. Technology (+1.7%) was the worst performer as a rotation out of high-valuation growth names continued. Energy (+2.8%) also lagged last month, though it remains the best-performing sector year-to-date.
|Index||March 2021||YTD 2021|
Bonds rarely get top billing in these summaries, but inflation concerns and rising interest rates have become more significant drivers of stock prices in recent months. 10-year Treasury yields continued to surge higher in March, reaching 1.75% (compared to 1.46% a month earlier). As recently as New Years Eve, those yields were below 1%.
The move is rooted in expectations of especially strong economic growth. The Federal Reserve in March boosted its growth outlook for the US economy to 6.5% in 2021, sharply higher than the 4.2% it forecast in December. The Fed has yet to adjust its near-zero rate policy, but the bond market is essentially making that change on its own.
Fed Chair Jerome Powell has been adamant the Fed will allow inflation to trend higher than its official 2% per year long-term target and focus instead on what is best for the US labor market. The early March employment report showed 380,000 jobs were added to the economy in February (nearly double consensus expectations). January data was revised higher as well.
The pairing of still dovish central bank policy with government spending sprees seems an entrée investors can’t get enough of. On March 11, President Joe Biden signed into law his $1.9 trillion stimulus package, which includes $1,400 checks and an expanded child tax credit for eligible Americans, among other things. Although the bill was passed with zero Republican support, polls suggest the vast majority of American voters approve of the legislation, including 40-60% of registered Republicans.
It’s no surprise “free money” is generally met with open arms, although growing inflation pressures reflect the reality that trillions in liquidity won’t come without some long-term costs. With his approval numbers high and his Democratic majority in tact (for now), Biden has already shifted the political attention to a proposed $2 trillion infrastructure plan that would raise the corporate tax rate. It will, no doubt, remain in the Washington spotlight for months to come.
Small-cap and tech stocks both lagged the broader market in March. The Russell 2000 index gained less than 1% last month, although its 12.4% year-to-date return still doubles the S&P 500. The NASDAQ, meanwhile, recorded an official correction by dipping a full 10% from its mid-February high. It has since recaptured about half those losses.
Large-cap Value stocks remained popular and have outperformed Large-cap Growth for seven weeks in a row. International equities offered a mixed bag as Non-US Developed stocks rose 2.5% in March, but Emerging Markets fell slightly.
Oil prices reached their highest point in two years thanks in part to the latest OPEC production agreement. West Texas Intermediate crude touched $66 per barrel in March before retreating.
The rate of US vaccinations continues to accelerate. 100 million Americans, roughly 30% of the population, have now received at least one does of the COVID-19 vaccine.
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Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
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