March – April 2021

U.S. Economic and Market Highlights

The Economy

  • The inflation debate is on! Fed Chair Powell noted the economic recovery was progressing well and that bouts of rising inflation in 2021 should be “transitory”.
  • Commodity prices have risen significantly including copper, iron ore, lumber, and wheat resulting in increased prices for food, durables, housing, and new construction.
  • The question is whether wages will increase and if companies will be able to pass along higher prices to consumers. The change in private-sector nominal average hourly earnings is well below the CPI inflation rate thus far in the recovery. This story has not yet played out.
  • Central banks remain accommodative by keeping interest rates near record lows, which has elevated investor risk-taking to seek higher rates, equity valuations, economic growth, corporate sales, consumer spending, and employment.

Fixed Income

  • 10-Year U.S. Treasury Bond yields climbed 81 basis points in the first quarter to 1.74% and remained in a much narrower trading range since March 31st.
  • Bonds remain an important part of the portfolio because they anchor the overall portfolio by providing principal protection from potential equity market corrections as equity valuations continue breaking record highs. When current bonds reach maturity in a rising interest rate environment, newly issued bonds can be purchased at higher rates to provide additional yield in the future.
  • The downside to bonds near-term is that if rates continue to rise in conjunction with the economic recovery from the pandemic, principal values are expected to decline near-term as higher rate bonds issued in the meantime will be more attractive to investors.


  • Energy, materials, financial and industrial sectors all advanced in recent months driving the S&P equity index to new all-time highs.
  • The value-style of equity investing outpaced the growth-style for the third quarter in a row, after a long growth equity outperformance trend.
  • Value-style companies (compared to growth-style) include:
    • Stock prices upon purchase that are lower than the intrinsic value of the company and less correlated to the broad market price trends.
    • Long-term track records as quality companies with positive earnings and strong balance sheets.
    • Free cash flow from operations to pay shareholder dividends.
  • When recovering from a recession, value-style investments typically outperform growth-style. Value investors are able to identify stocks that are trading at bargain prices, through fundamental analysis, and hold them until they earn a profit later when the stocks are sold.
  • First quarter earnings globally have been mostly positive and equity markets have responded favorably. (See market tracker below). Although, some countries are experiencing a lopsided recovery due to continued pandemic outbreaks and/or slow vaccine distribution.

This communication was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.