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Quarter 1 Market Update

What happened:

·         U.S. equities continued their upward movement from the pandemic lows seen in March of 2020. The first quarter ended strongly with March adding significant returns to an otherwise choppy year. With the S&P at +5.46%, DJIA +7.76 and NASDAQ only +2.78%, it was clear that a shift towards value has taken place. Small Caps outperformed all with the Russell 2000 up over 12.4% for the quarter.

·         International markets yet again have lagged the U.S., both in developed (+2.83%) and Emerging markets (1.95%). Global monetary supply continued to be increased by central banks, and the recent $1.9 Trillion stimulus from the Biden administration and a similar dollar amount in an infrastructure bill shows no sign of curtailing this massive amount of government spending and borrowing to fuel the economy.

·         While the massive spending in the US had surely been tailwind to the US equity markets, the fixed Income markets were challenged with a significant rise in inflation expectations. We saw a rise in the 10 Year US Treasury Yield of 81bps to 1.74%. The Barclay’s Aggregate Bond Index returned a negative (3.37%) in the first quarter of 2021.

What we did:

·         As we saw a rotation from Growth to Value (a flight towards quality), volatility pursued resulting both loses in some of our holdings as well as significant prices drops in other stocks that we had been watching. We chose to make the best out of the situation and actively realize loses for tax sensitive clients. We also took saw an opportunity to add some growth stocks that were previously viewed by us as overpriced (i.e., PTON)

·         We also made some tactile shifts such as adding direct exposure to Semiconductors via SMH. With a shortage in supply and growing demand (renewable energy) we saw this as both a short-term and longer-term opportunity.  

·         While we believed the gap between value and growth had closed significantly, and value became more difficult to identify, we added some additional yield in our Equity Income strategy via high yield debt.  We saw the space as attractive with equity valuations being where they are, the Fed fund rate remaining at zero and tons of monetary supply, making default in the high yield less likely.

What we are watching:

·         We are looking to see a decrease in jobless claims, continued vaccination of adult populations (end of summer herd immunity), along with stimulus money pushing overall economic growth.

·         We are not overly concerned yet are anticipating some inflation and new money begins to circulate. However, hikes in federal tax rates and potential changes to the tax code on cap gains/ investment income could be a larger concern.

·         Proxy believes we will continue to see market volatility and we will be looking for the opportunities it will create to enter long-term investments at a fairer valuation.

·      We continue to keep an eye on the COVID-19 vaccination numbers globally, and how new COVID mutations and new waves might hinder recent efforts.

Disclaimer: Investing in financial markets carries risk, including loss of principal. You can lose some or all of the money that is invested. Past performance is no guarantee of future results. The material contained herein is for informational purposes only. This document does not constitute a recommendation of securities, securities portfolio, transactions or investment strategies. The projections were created based on hypothetical information, there is no guarantee that any of them will come true. Proxy Financial is a registered investment adviser. Proxy and its Financial Advisors are not licensed in all states to offer securities and insurance products. This site is not a solicitation of interest in any of these products or service in any state which the registered representative is not properly licenses.

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