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
What a difference a year makes. March of 2020 was marked by fear and uncertainty, as a frightening, new pandemic sickened thousands and tore through the economy like a wrecking ball. Between February 14 and March 20, the S&P 500 index plummeted by 32%.
Fast forward to March 2021: The COVID-19 vaccine rollout, initiated in the U.S. in December, was in high gear, and the economy continued to gain strength. The S&P ended the month at a record high, up more than 77% from its bottom a year earlier. After an awful pandemic year that claimed more than 555,000 lives1 and millions of jobs in the U.S, we finally glimpsed the light at the end of the tunnel.
The March stock market performance reflected this newfound optimism. Powered in part by the passage of President Biden’s $1.9-trillion stimulus bill, U.S. stocks (VTI) rose a robust 3.65%, bringing their gain for the trailing 12 months to 62.90%. International equities (VEA) rose 2.77%. Emerging-market equities (VWO) cooled off, falling 0.71% for the month, while municipal bonds (MUB) gained 0.57%.
Meanwhile, U.S. bonds (BND) fell 1.27% on inflation fears. The concern: Rapidly increasing economic demand, boosted by successful vaccine distribution and additional stimulus, would quickly push up the prices of goods and services.
Inflation eats into the value of the income stream that bonds produce and, as bondholders sell, bond yields rise. In the just-completed first quarter, the yield on the benchmark 10-year Treasury rose from 0.92% to 1.75%, creating potential implications for mortgages and stocks. Bear in mind that the 10-year Treasury yield is still relatively low: In 2018, by comparison, it stood near 3%, and in 2007 it was above 5%.
March’s macroeconomic data were mostly positive. The U.S. unemployment rate dropped to 6% from 6.2% in February, as 916,000 new jobs were created. The strong jobs report was a direct result of the U.S. economy’s accelerating reopening. The Atlanta Fed expects annualized Gross Domestic Product growth of 6% in the first quarter, up from 4.1% in the fourth quarter. And global economic activity remains in expansionary mode, as measured by the Global Manufacturing Purchasing Managers Index.
While the U.S. may be turning the corner on the pandemic, we’re not out of the woods yet. More transmissible variants of the virus are expanding within the population, even as the country races forward with vaccination efforts. As White House senior advisor for COVID response Andy Slavitt recently said, “the worst thing we could do right now is mistake progress for victory.”
For investors, the prospect of prolonged economic expansion is good news. But short-term market volatility, arising from the combination of high stock valuations and rising bond yields, is very possible. As always, disciplined investors with properly diversified portfolios should weather the volatility in good shape. Please don’t hesitate to reach out to your Partner Advisor with any questions.
Major Market Index Returns Period Ending 4/1/2021 (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 December 31st, 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. Rattner, Nate. “U.S. Covid cases are on the rise as vaccinations pick up amid expanded eligibility guidelines.” CNBC, 31st March 2021