Anna Rathbun, Chief Investment Officer

Pandemic-related issues were still dominating the headlines during the first month of 2021, and we ended January cautiously hopeful on vaccinating the country. We had not anticipated the snowball effect of the vaccination effort – the numbers of net new weekly cases fell from the peak of 1,715,724 during the first week of January down to 471,554 by the last week of February, representing a 73% drop in seven-day average of new infection numbers with only 7.6% of the U.S. population vaccinated. The upside surprise on the vaccine’s ability to curb new infections could mean an earlier-than-expected economic reopening and recovery. In the meantime, data in the United States and abroad showed resilience during the heart of winter. Unexpectedly, global recovery seems to be beckoning at our doorstep, and the anticipation for faster growth stoked fears of potential inflation ahead.

Highlights

• The positive returns of major global equity indices in February mask the inflation-induced repricing of risk assets near the end of the month.
• Despite the Fed’s reassurance that rates will stay low for a long time, growth-oriented stocks, especially tech names sold off as Treasury yields moved higher.
• Cyclical stocks, on the other hand, charged ahead as a part of the reflation trade with sectors such as Energy, Financials, and Industrials posting positive returns.
• Both foreign developed and emerging market equity indices posted positive returns, despite a currency headwind from the strengthening U.S. dollar.
• The High Yield Corporate Index stands out for the month with positive returns as corporate spreads tightened further, mitigating the effects of the rising Treasury yields.
• The Fed is ready to overlook what it calls “transitional” movement in prices and to focus on its dual mandate of full employment and structural price stability.

Looking Ahead

As we begin our journey out of the winter months, the potency of the vaccines seems to offer a light at the end of this dark COVID-19 tunnel. Johnson & Johnson’s vaccine has now been cleared for emergency use in the United States, which should help to accelerate the pace of vaccinations. Despite an improved outlook for economic recovery, another COVID-19 aid bill of nearly $2 trillion in size is making its way through Congress and may continue to dominate the headlines in March. Looming faintly in the background are whiffs of potential tax increases and a glimpse of the new Biden Administration’s approach to U.S.’s relationship to China. The current rhetoric on China maintains the hawkish tone of the previous administration, and the implications for multi-national corporations, along with any future changes to the tax code will be dissected in the coming months.

More Information

For more information on the January financial market activity, please contact CBIZ Investment Advisory Services.

The information included in this update is provided for informational purposes only and should not be construed as investment advice. The views expressed are those of the author based on the data available when this update was written and are subject to change based on market conditions or other factors. CBIZ Investment Advisory Services and/or CBIZ Retirement Plan Services disclaims any liability for any direct or incidental loss incurred by applying information supplied in this update.

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