April 1, 2021
Happy Spring! We have moved our clocks ahead, the days are getting longer, the weather is feeling warmer, and the vaccine rollout is continuing. It is hard to believe the pandemic has been in full effect for a year. Thankfully, the light at the end of the tunnel seems to be coming closer. We appreciate the opportunity to work for you and are honored to have your business.
2021 First Quarter Market Overview
Through the first quarter, the story of capital markets has shifted from where they ended 2020. In 2020, the technology-heavy Nasdaq led the three major indices, followed by the S&P 500 and the Dow Jones Industrial Average. So far, in 2021, the Dow Jones has been the best performing index up more than 7.5%, followed by the S&P 500 up more than 5.5%, with the Nasdaq up less than 3%.
Capital markets have responded favorably to more political clarity and accommodative fiscal stimulus. In politics, a pivotal Senate runoff election in Georgia resulted in the Democratic Party taking marginal control of both chambers in Congress. With this marginal control, Congress passed a $1.9 trillion stimulus package which pushed Treasury yields and interest rates higher. The 10-year U.S. Treasury yield is almost 1.75% after starting the year at 0.9%--almost a 100% increase in just three months!
With rising interest rates, a rotation from high-growth stocks continued into sectors tied to reopening activity. Energy, which had been one of the worst performing sectors in 2020, was the strongest performing sector in the first 3 months of this year.
Retail Stock Mania
We were taken back to the nostalgia of the shopping mall in the late 1990’s. GameStop, AMC, Blackberry—for a moment, they were all relevant again!
A flood of retail trading drove certain stocks to extreme highs, squeezing hedge fund managers who had bet against these shares.
- GameStop shares skyrocketed more than 2,400% to a high of almost $500 per share in January. Since then, their stock has fallen by almost 60%.
- AMC Entertainment surged more than 800% in January—today their stock has fallen almost 50% from that high.
- Blackberry shares soared almost 350% by January 27th and since then have fallen more than 70%.
To hear what happened with these stocks, particularly GameStop, check out our two-part Podcast series on Wade into Wealth.
$1.9 Trillion Economic Rescue Package
Congress approved the 3rd installment of a COVID-19 economic rescue package in mid-March. The plan sends direct payments to Americans, extends unemployment benefits, expands the child tax credit, and infuses funds into vaccine distribution. The marginal control the Democratic Party has in both chambers of Congress helped to pass the newest relief package without any Republican support.
The bill will send $1,400 direct payments to most Americans. The checks will begin phasing out at $75,000 in income for individuals and is capped for those who make $80,000 or more. These levels are doubled for those who file their taxes jointly. It extends a $300 per work jobless aid for the unemployed until the beginning of September and it also makes an individual’s first $10,200 in jobless benefits tax-free. Child tax credits have been expanded for one year and will increase by $600 for kids between ages 6 and 17.
The anticipation and eventual news of this package sent interest rates and Treasury yields much higher. Interest rates on longer term Treasury investments saw some of the largest monthly jumps they have seen in the past 5 years and has sent jitters through fixed income markets.
Wade Into Wealth
We discussed a number of these topics in our recent weekly podcasts. Specific episodes that shed additional light on the commentary above are:
- Episode 3 – Presidents and the Stock Market
- Episode 5 – GameStop – What Happened?
- Episode 8 – GameStop, Part II
- Episode 11 – COVID-19 and the Stock Market – One Year Later
- Episode 13 – What To Do With Your Stimulus Payment
Wade Into Wealth Podcast can be found at www.brightonsecurities.com/podcasts or anywhere else podcasts are found.
Points of Interest
- The tax filing deadline has been pushed back to Monday, May 17th.
- This extends the deadline for IRA contributions being made retroactively for 2020.
- Required minimum distributions are once again mandatory, after being waived for 2020. If you have questions on how this impacts you, please let us know!
- Stock Market Holidays: Our office will be closed in observance of the following holidays.
- Friday, April 2nd – Good Friday
- Monday, May 31st – Memorial Day