The first quarter of 2021 marked the 4th straight quarter of positive returns for the equity markets. The end of the first quarter of 2021 was met with more fiscal relief as the $1.9 trillion American Rescue Plan (ARP) was passed.  Massive fiscal stimulus, the anticipation of pent-up consumer demand leading to a strengthening economy, and improved COVID-19 numbers have all led to unprecedented equity market returns with the S&P 500 up nearly 80% since the market low in March 2020.

Value stocks continued to outperform growth stocks during the quarter. The Russell 1000 Value Index returned 11.3%, while the Russell 1000 Growth Index returned 0.9%. All S&P 500 sectors were in positive territory during the quarter, with energy and financials continuing to lead the way, returning 30.9% and 16.0%, respectively.

Foreign equity markets posted modest positive returns during the quarter with the broad International Index (as measured by the All Country World Index ex US) and Emerging Markets indices up 3.5% and 2.3%, respectively. 

However, the bond markets have seen a much different story as yields continued to rise from historical lows with investors revising their expectations for economic growth upward (bonds have an inverse relationship with interest rates so when bond yields increase, bond prices fall).  The 10-year Treasury rose from 0.93% to 1.74% during the quarter, resulting in a negative return of the Barclays US Aggregate Bond Index of -3.37%.

US economic growth in the first quarter 2021 picked up as COVID-19 vaccinations began to reach more people and more of the economy reopened. First quarter GDP grew at an annual rate of 6.4% based on the first advanced estimate.  Quarterly growth rates of GDP are likely to fall in the range of 5% to 10% over the next year (a magnitude that hasn’t been seen since the mid-1980’s). 

Total nonfarm payrolls increased by more than 900,000 in March which was the largest gain in eight months. Manufacturing activity spiked to the highest level since 1983, mostly led by the automotive and capital goods sectors.  

During the first quarter, headline inflation as measured by the Consumer Price Index (CPI-U), grew at 2.6%, up from 1.4% the previous quarter. A continued rise in energy prices, particularly gasoline prices during the quarter, were the major contributors to the increase in the inflation index.