As we officially move into the second fiscal quarter of 2021, we can look back on the first quarter to understand the impacts of early-year market performance on the U.S. economy. As vaccination programs currently represent our best hope for ending the global pandemic, it’s no wonder that market performance and economic activity have been closely tied to the vaccine rollout.
The initial rollout has been shaky at best, with only 23% of the American population being fully vaccinated as of early April. (1) However, as more vaccines are produced and distributed, we may look forward to continually relaxing coronavirus restrictions and a renewed return to normalcy.
Although the end of Q1 showed just moderate growth in the U.S. stock market, the Dow is up nearly 12% as of mid-April and the S&P 500 is up 11%. Meanwhile, the NASDAQ is up 9%, (2) showing strong market growth for the year so far. All business sectors in the U.S. experienced gains in March, with the service sector finally making a comeback as coronavirus restrictions eased or lifted. (3)
International travel, on the other hand, remains largely restricted with concerns for regions that rely on tourism going into summer. (4) Additionally, even though China has struggled to dispense vaccines at a rate close to other developed nations, its stock market has far outperformed markets in Europe and the U.S. (5)
Although experts disagree on what constitutes a bond bear market, there are some indications we are presently experiencing one. According to Charles Schwab, a bond bear market occurs when the 10-year Treasury yield rises by at least 100 basis points. (6) Since reaching a low point of 0.50% last August, 10-year Treasury yields have risen by about 125 basis points up to now.
However, fiscal policy response to the coronavirus pandemic may lessen the impacts of the current bond bear market. The market is beginning to price in Fed rate hikes ahead of the Fed’s own predictions, but long-term yields have returned to pre-pandemic levels and inflation rates appear to be on track with the Fed’s target range.
Looming Investment Bubble?
Investment bubbles are impossible to predict, but historical data does reveal certain warning signs that may signal a looming investment bubble. Most investment bubbles begin with a strong underlying theme (such as tech stocks in the 1990s or home prices in the 2000s). For now, a possible fundamental theme may be “green” infrastructure.
Due to a multitude of global factors, such as President Biden’s focus on climate change, the European Union’s recent commitment to their “Green Deal,” and China’s vision to transform its economy to be more green in the next 5 years, investor confidence in this global sector is high. These factors combined with “easy money” gained from government stimulus hint toward the possibility of a coming bubble. (7)
What Can You Do?
The government stimulus packages make it difficult to determine the overall health of the economy—both in the U.S. and globally. While economic performance does affect your investments in the short term, we remain committed to long-term investment strategies that rely on historical and research-backed evidence.
If you’re concerned about market volatility and what it means for your future, we urge you to remain calm and work with experienced financial planners like the team at T.A. Holland who can help you make decisions that work toward your long-term goals. To see how we can help, reach out to us at 617-523-5656 or email@example.com to schedule a complimentary appointment.
About T.A. Holland & Co.
T.A. Holland & Co. was founded in Boston, Massachusetts, in 1920 and serves individuals and businesses throughout the country with their financial needs. We provide cutting-edge financial services with a broad array of solutions to help our clients grow and preserve their wealth. We have seen good and bad economic times. Throughout it all, T.A. Holland & Co. has thrived by always making the customer our number-one priority. We get to know you and understand your needs so we can provide you with the proper guidance and strategies. Our senior vice president, John Hellmuth, has been at the helm of T.A. Holland’s financial services since 1990, but he doesn’t do this job alone. He is joined by his two children, Lindsay Hellmuth and Thomas Hellmuth. As CERTIFIED FINANCIAL PLANNER™ practitioners, our financial services team has the knowledge and experience to help you solve your most pressing financial challenges. To learn more about how we can help you, visit our website and reach out to us to schedule a complimentary get-acquainted meeting.