Market Commentary: First Quarter

Market Commentary Q1 21

2021 has started out in a positive direction for global stocks as a large number of people have been vaccinated, the economy continues to open up, and additional government stimulus has been provided. Large companies represented by the S&P 500 Index gained 6.17% for the quarter. Small companies represented by the Russell 2000 increased 12.7% for the quarter. International stocks represented by the iShares MSCI EAFE Index increased 3.48% for the quarter. The bond markets started to be concerned about the amount of stimulus being infused into the system and the impact it might have on inflation. The Barclays US Gov/Credit 1-5 Year Index was down –0.57% for the quarter.

The 12 month return numbers are some of the best we have seen in a while, as the markets have rebounded from the initial COVID-19 impact on the global stock markets. The best performing segments of the markets have been small companies and value companies, which had underperformed their large and growth counterparts for the last few years. It only makes sense that these asset clases would soon have their day to shine, and investors sticking to our diversified approach of owning these securities should have participated in these great investment results. These asset classes can change direction very quickly and in a very random manner. It is important to stay the course and rebalance as needed.

The Federal Reserve has promised to keep interest rates low, but the market started to price in higher interest rates this quarter because of the extra stimulus. $1.9 trillion dollars is a lot of money and the bond markets were taking in this information and translating it into inflationary pressures that could raise interest rates. When interest rates rise, it makes it more expensive for companies to borrow money for capital projects. If expenses increase, that could reduce shareholder profits and company stock valuations are generally determined by how much profit the company is going to make. If profits are going to be down, then the stock price will also follow suit.

Last year was an interesting tax year for a lot of people with the tax law changes in the SECURE Act, then the CARES Act. This year, we are expecting the new administration to make additional changes to the tax code. We will continue to monitor the legislative process to anticipate how tax changes might impact portfolios, retirement planning, and other important tax strategies. As always, please contact your Petersen Hastings advisor regarding changes in your situation, or any questions that you may have.

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