March Recap and April Outlook
The American Recovery Act, President Biden’s $1.9 trillion stimulus, went into effect and both the economy and the market exhaled. The recovery has now fully recovered. The Fed expects the economy to expand by 6.5% this year, up from the 4.2% projected in December 2020. Despite the growth projection, Chairman Powell again stated the Fed would keep current rates in place.
On the manufacturing front, the Philadelphia Fed’s Current Activity index for current manufacturing activity in the region jumped from a reading of 23.1 in February to 51.8 in March, its highest point in nearly 50 years. With vaccine rollouts ahead of schedule and reopening happening at speed, services shouldn’t be too far behind.
And consumers definitely got the positive vibes: The University of Michigan’s consumer sentiment for the US was revised higher to a one-year high of 84.9 in March of 2021. It was also the largest increase in consumer morale since May 2013. Since 70% of GDP is consumer spending… well, you get the picture.
- Both the Dow Jones Industrial Average and the S&P 500 posted a fourth straight quarter of gains, with the two indexes rising 7.8% and 5.8% in the first quarter of 2020, respectively.
The S&P 500 hit its low point on March 23, 2020. At the one-year anniversary last Tuesday March 23rd, the index closing level was about 75% above last year’s low point. March wasn’t all sunshine and roses. Inflation fears and rising bond yields created some volatility, but it was no match for the stimulus and the prospect of a “once in a generation” infrastructure package.
Value is continuing to have a moment, after lagging for years. U.S. large-cap value stocks outperformed growth stocks for the seventh week in a row during the last full week of the month. Over the entire first quarter, cyclical stocks (which are sensitive to economic momentum) were the leaders.
After seven consecutive weeks of rising U.S. Treasury yields, they finally fell towards the end of the month and the rapidly steepened yield curve flattened a bit. Some of this may have been on buying ahead of quarter end. Similarly, investment grade and high yield bonds also saw some positive performance toward the end of the month after starting the year out negative.
The Smart Investor
Earnings season starts mid-April and investors will be looking to see if the momentum from last quarter has continued. Sectors that seem poised to do well in the near term include financials and consumer, as the effect of the stimulus is felt. Balance sheets will likely improve, and consumers are ready and willing to do their duty for the economy by spending their stimulus money and some of their record levels of savings.
Stimulus and reopening could prove positive for materials and industrials in the near term, and if an infrastructure bill passes, that could turn into a much longer-term opportunity. Since materials and industrials have a high weight in value indexes, the value story may continue for a while longer.
We’re certainly not out of the woods and into the light yet. Risks from COVID remain, infrastructure may not pass, and inflation, despite the Fed’s best efforts at reassurance, may turn out to be higher for longer than anticipated.
Markets have been responding well for the past year, but volatility has been and seems poised to remain high. This year may be about making sure your plan is in place to mitigate potential downturns while positioning your portfolio to potentially capture the upside. Checking in with your advisor to be sure that your current portfolio is on track to meet your goals makes good sense.
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