Trisha shares her thoughts on the markets, either about specific events that are happening or the market in general. Please check back regularly for new content.
Quarter One 2021 Update
The Beatles once wrote a song about a long and winding road that would lead them back to some unknown door and I think that is a good way to picture the future of the global economy. While we are on the road back toward whatever our new normal will look like, that road isn’t a straight one and there will be many obstacles to navigate as we traverse it.
While the vaccination efforts in the US have already reached over 50% of adults with at least one shot, most countries are nowhere near that and some countries have had little to no access to vaccines at all. As more cases of Covid-19 spread around the world it impacts many things, including the global economy, by directly effecting trade, supply chains and access to raw materials. At the same time, the pent-up demand for socialization that is apparent both in the US and elsewhere is beginning to have an impact as people in some places start to feel safe getting together, eating out and planning vacations again. As vaccines become available to more and more people around the world, I would expect economic activity to accelerate and in fact forecasters expect US and global economic growth to be higher in 2021 than it has been in many years.
Not surprisingly, the investment markets during the first quarter reflected the view that the winding road ahead is going to keep moving us forward as both domestic and international stock indexes added to their gains from last year. At the same time, as fixed income markets tried to adjust to the improving economic outlook, interest rates jumped, causing the Barclays Aggregate Bond Index to decline in value slightly.
Looking ahead, we continue to feel that quality stocks could benefit over time from an improving economic picture and the potential for growth to remain above trend for more than just a few months. At the same time, as investors we have to understand that the investment markets – like this path back to normalcy – are not a straight line. Even during times of good economic growth it is very normal and expected for the stock market to experience volatility and corrections (defined as declines of 10% or more). These can be caused by moments of uncertainty, unexpected events or even just pure profit taking as investors realign their portfolios. Our job is to stay focused on the long term and not let short term volatility shake us from our goals.
Over the last couple of quarters, we have purposely favored stocks slightly as we have reviewed and rebalanced portfolios. We anticipate continuing to do so but selectively taking gains in situations where warranted. As always, we believe appropriate diversification is important, especially in times of potentially heightened volatility, however we believe that in the current environment that the role of our traditional bonds will be more about providing stability than return potential.
Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged, and investors cannot invest directly into an index. Diversification does not ensure against market risk.