This article was co-authored by Kevin Calhoun, CFA®, Investment Associate.
In the first quarter of 2021, COVID-19 vaccine distribution ramped up, fiscal stimulus remained highly accomodative, and inflationary concerns were top of mind for many investors. Here are Q1 highlights:
• Vaccine distribution accelerated in the U.S. As of March 31, approximately 28.9% of the U.S. population has received at least one dose, and 16.1% of the population is fully vaccinated.1
• The American Rescue Plan Act of 2021 passed. At $1.9 trillion, some of the key provisions of the stimulus bill include direct payments to individuals, additional unemployment benefits, state and local government aid, vaccine-distribution funding, healthcare subsidies and restaurant aid. Read more about the Act here.
First quarter returns
Returns shown in the chart above are for first quarter 2021.
Source: Morningstar®, data as of March 31, 2021. See disclosure page for more information.
• Equity markets posted solid results in the first quarter. U.S. small cap value stocks posted the strongest performance, up +21.2%.
○ A strengthening U.S. dollar relative to international currencies weighed down returns for U.S. investors in international markets.
○ Value stocks generally outperformed growth stocks across the spectrum of global equity markets.
○ From a sector perspective, with oil prices rebounding significantly and interest rates rising, Energy and Financials sectors were among the best performing sectors.
Source: Morningstar®, data as of March 31, 2021. See disclosure for more information.
• Most investment-grade fixed-income sectors experienced negative returns pressured by rising interest rates.
○ The U.S. treasury yield curve steepened considerably; two-year treasury yields rose 0.05% over the course of the quarter, while 10-year treasury yields rose 0.81%.
○ Municipal bonds, which tend to be less impacted by the rising rates environment, declined just 0.3%.
○ U.S. high-yield credit spreads narrowed during the first quarter, and lower quality segments of the bond market outperformed the higher quality segments.2
• Investors’ attention was also focused on how the Federal Reserve may handle potentially stronger inflationary pressures. The spike in longer term treasury yields during the quarter indicates that investors are starting to demand higher yields. However, most Federal Reserve officials view the potential increase in inflation as transitory and still expect to maintain interest rates near zero through 2023.3
Those are our highlights for the first quarter of the year. If you have any questions about how the above information impacts you, your finances or your investment portfolio, contact a Wipfli Financial advisor.
U.S. Stock Market: Russell 3000 Index
International Developed Stocks: MSCI EAFE NR Index
Emerging Markets Stocks: MSCI EM NR Index
U.S. Bond Market: Bloomberg Barclays Aggregate Index
Emerging Markets Bonds: JPM EMBI Global Diversified TR Index
Large Cap U.S. Stocks: S&P 500 Index
Small Cap U.S. Stocks: Russell 2000 Index
Int-Term Municipal Bonds: BBgBarc Municipal 1-10Y Blend 1-12Y Index
High Yield U.S. Bonds: ICE BofA BB-B US CP HY Constrained Index
Return data represent past performance and are not indicative of future results. Historical returns of indices do not reflect applicable transaction, management or other applicable fees, the incurrence of which would decrease historical performance results. Index information has been compiled by Wipfli Financial from sources Wipfli Financial deems reliable, but has not been independently verified. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only. Indices are unmanaged. It is not possible to invest directly into an index. Any charts and graphs represented herein are for informational purposes only and cannot in and of themselves be used to determine which securities to purchase or sell, or when to purchase or sell securities.
Source: ©  Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results