By: Linda S. Parenti, CFA - Chief Investment Strategist
Year-to-date, the equity markets continue to show positive momentum, reflecting growing signs of the economic recovery and rising expectations for corporate earnings. The S&P 500 is up 11.5% year-to-date as of yesterday’s close. Although volatility has eased in fixed income markets lately, the U.S. Aggregate Bond index is still negative year-to-date. Optimism has also been buoyed by the additional government spending expected to come from the $2.3 trillion American Jobs Plan proposed several weeks ago by the White House.
Interestingly, the strong underlying outperformance trends seen from small company and especially value style stocks during the first quarter have recently reversed. Month-to-date, large cap and growth style equities have once again taken the lead over small cap and value.
The financial crowd spent a lot of time during the first quarter debating if the value and small cap trends would continue. Yet, what is really being reflected in these indices are the performance shifts of the underlying sectors. For example, value style companies such as those in the energy sector, increased over 30% in the first quarter, while the more growth weighted technology sector gained only 2%. Since then, energy sector returns have turned negative, and technology is back to being the best performer.
As the outlook for the economy evolves and the legislative priorities of this huge spending package start to firm up, the expectations for various industries will continue to change alongside. Rather than chasing a trend or attempting to predict which style is going to win, a better approach for the long-term investor is to be well diversified by maintaining reasonable exposure among numerous sectors. Successful portfolio management is the ongoing, disciplined process of trimming back what has become overweight through rebalancing. Not nearly as exciting as betting on a winning trend, but financially healthier in the end.
I do believe the economy will experience a strong rebound this year. And even though the stock market and the economy do not always head in the same direction, I continue to be overall optimistic that there is room for equity prices to further appreciate in 2021.
Linda S. Parenti, CFA
Chief Investment Strategist
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.