Please find this month’s market updates below. This list is intentionally brief and uses ETFs that are readily available to all investors to represent the major markets. In the second section, there are five simple portfolio mixes, which are described by low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope these few, but important, data points are of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
No matter where you looked in February, stocks seemed to be going up. Domestic, international, and emerging markets all gained ground as positive earnings, encouraging economic indicators, and the continued rollout of the coronavirus vaccine buoyed investor optimism.
U.S. stocks (VTI) rose a robust 3.14% for the month, while international developed markets (VEA) gained 2.43%. Emerging market equities (VWO) were up 1.57%. U.S. bonds (BND) fell 1.55%, and municipal bonds (MUB) fell 1.56%.
In the U.S., investors welcomed surprisingly strong fourth-quarter corporate earnings. Nearly 80% of companies in the S&P 500 index reported earnings that beat projections, the third-highest percentage since 2008. Three-quarters of companies reported more revenue than expected. Stocks were also bolstered by progress toward the passage of a $1.9-billion stimulus bill. The Democrat-backed legislation, which the House of Representatives approved in late February, is now in the Senate, which could conceivably send a bill to President Biden before the March 14th expiration of unemployment aid.
Macroeconomic data, meanwhile, were generally positive. The first estimate for fourth-quarter economic growth came in at an annualized rate of 4.1%, down from the third quarter’s bounce-back rate of 33.4%, but higher than the long-term average of 3.2%.1 U.S. unemployment fell to 6.2% in February from 6.3% in January, as the economy gained 379,000 jobs. Global economic activity remains in expansionary mode (as measured by the global Purchasing Managers’ Index).2
Inflation fears got a lot of press in February, spurred by worldwide rising costs for food3 and energy.4 Still, the U.S. inflation rate for the 12 months ending with January was 1.4%, below the historical average of 3.1%.5
Perhaps the biggest story of February, however, was the 10-year Treasury’s spike in yields. The benchmark bond’s yield rose from 1.09% at the beginning of the month to 1.6%, before ending the month at 1.46%. The 10-year yield is often viewed as a proxy for investor sentiment about what lies ahead for the economy. In this case, many interpreted the higher yield as a signal that the economy will continue to gather strength.
The U.S. economy has recovered faster than many expected following its 3.5% contraction in 2020 — its worst year for gross domestic product since World War II. While employment is not expected to recover to pre-pandemic levels this decade, the economy should grow by 4.6% this year, according to the nonpartisan Congressional Budget Office.6 That’s higher than the historical average of 3.1%.7
The economy and the investment markets will fluctuate from year to year. The best way for investors to achieve their long-term goals is to build and maintain a well-diversified portfolio. Your portfolio should be like a ship built to navigate through uncertain conditions — and carefully maintained to stay free of leaks in the form of excessive fees and taxes. Don’t hesitate to reach out to us with any questions about the markets and your portfolio.
Major Market Index Returns Period Ending 3/1/2021 (Annualized)
Selections include ETFs generally available to consumers. Returns are annualized and net of management fees but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes are Stocks/Bonds and are represented by VT/BND; returns are annualized. Vanguard funds are a net of all management fees but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of June 30th, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The SPIVA Scorecard is a robust, widely-referenced research piece conducted and published by S&P DJI that compares actively managed funds against their appropriate benchmarks on a semiannual basis.
1. US Real GDP QoQ, Ycharts.com
2. Global PMI Tracker, Bloomberg
3. World Food Situation, fao.org
4. Weeky Retails Gasoline and Oil Prices, eia.gov
5. Long Term U.S. Inflation, inflationdata.com
6. Unemployment rate falls to 6.3%, though US adds just 49K jobs, ChicagoTribune.com
7. United States GDP Annual Growth Rate, tradingeconomics.com