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Market Update

The first quarter of 2021 was much better for stock investors than 2020. Bond investors had a very different experience, with the benchmark Aggregate Bond Index falling. International stock markets appreciated, but not at the pace of the US market.

There appears to be a continuation of the market rotation that developed in late 2020. As we can see light at the end of the Covid tunnel, investors are buying the assets that were left for dead as the global economy locked down. Fear pushed share prices down for businesses that relied heavily on “normal” economic activity. That same fear pushed the price of government bonds up. To the right, you can see the relative performance of the Airlines ETF to Online Commerce ETF. Airlines’ value fell dramatically compared to Online Commerce during the first half of 2020. We have noticed a reversal of that trend over the prior two quarters, as travel is likely to trend towards normal later this year.

All countries will not emerge equally. Access to vaccines and economic stimulus has been remarkably better in the United States, than in most other countries. The European Union struggled to secure vaccines quickly, as the 27 members political union is not particularly nimble. They seemed to fail at some basic economic principles, mainly supply and demand. When there are more buyers than sellers (for vaccines), holdng out for a better price is ill-advised. The UK was able to buy vaccines produced in Germany, that the German government could not purchase, due to the EU’s botched negotiating.

 

While very few Americans are satisfied with the US government, this has been a reminder that our form of democracy still functions better than most. This is one of the primary reasons that developed international stock markets are held far below their weight in the All Country World Index within WealthMark and WealthBuilder Strategies.

WealthMark and WealthBuilder Strategies invest in stocks, bonds, and commodities across many different markets. Q1 generated positive results for most stock funds. Smaller capitalization stocks have a larger allocation than standard indices within these strategies. As shown in the market data below, this was very beneficial over the last three months.

Treasury yields climbed during the first quarter, pushing the price of those bonds down. WealthMark and WealthBuilder strategies are more concentrated in investment-grade corporate and agency bonds than the aggregate bond index. This was a benefit to investors in first quarter, as bond-heavy conservative strategies held value much better than benchmarks.

Gold is included to extend diversification beyond just bonds. It’s price fell in the first three months, after a large rise in 2020. It still offers diversification benefits and is being retained.

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Scarlet Oak Financial Services can be reached at 800.871.1219 or contact us here.

Securities offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. 

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.

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