The NASDAQ Posts Strong Week to Finish Off the First Quarter

• Stocks rose during the holiday-shortened week. We saw global markets (represented by the MSCI All Country World Index) up 1.1% and domestic stocks (represented by the S&P 500 Index) up 1.2%. Emerging markets companies led the way, up 2.2%.
• For the month of March, domestic large cap stocks posted a 4.4% return. Below are returns for the major indexes through the first quarter of 2021:
  • MSCI All Country World Index (Global Stocks): 4.6%
  • S&P 500 Index (U.S. Large Companies): 6.2%
  • Russell 2000 Index (U.S. Small Companies): 12.7%
  • MSCI EAFE (International Developed Stocks): 3.5%
  • MSCI Emerging Markets (International Emerging Stocks): 2.3%
  • Barclays U.S. Aggregate Bond Index: -3.4%
  • Barclays Municipal Bond Index: -0.4%
• In a reversal of market leadership, the technology-heavy NASDAQ index outperformed cyclical sectors and posted nearly a 3% weekly return.
• Through the end of last week, it was still those cyclical sectors performing best year-to-date. Leading the way so far this year are energy (34.3%), financials (17.5%), and industrials (11.9%).
• The Biden administration announced some of the financial details of the American Jobs Plan, which is a large infrastructure bill. The plan proposes $2.25 trillion in spending over the course of eight years, which would be covered by raising the corporate tax rate from 21% to 28% over the span of 15 years. 
• The March jobs report was released on Friday and announced nonfarm payrolls rose by 916,000 during the month. That was well above expectations and the unemployment rate declined to 6%.
• As you can see above, it was a bumpy ride for bonds in the first quarter (bumpy is a relative term). In the first quarter, the 10-year Treasury yield rose 0.92% up to 1.69%, which is a fast rise in such a short time. That was driven by expectations of rising inflation, which is a headwind for level-coupon bonds. This is a big reason why we’ve advocated for a diversified and active approach to bonds in such a low yield environment.
• If we’ve learned anything over the last year it’s that stock and bond markets will always be surrounded by noise. We’re in the middle of fighting out of a pandemic, the economy is in a rapid recovery mode from a record fall, and the country is about as polarized politically as it can be. It’s so important that we, as smart rational investors, always make our decisions with our long-term goals in mind. Investor behavior is as responsible for success as anything else, so we must all remain disciplined and filter the noise around us.
• I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.

Regards,

Mike Horwath, CFA

Chief Investment Officer