What a difference a year makes! The first quarter of 2021 included the one-year anniversary from the March 2020 equity market’s bottom. For the first quarter of 2021, equity markets encountered volatility but still created all-time highs. With the potential of herd immunity following mass vaccinations, investors finished the quarter with hopes that the end of the pandemic could be seen by mid-year. Many optimists are hoping that the U.S. economy will continue to accelerate when that happens.
All three major indexes finished the quarter positive, marking the fourth consecutive quarter of doing so. The Dow Jones Industrial Average (DJIA) and S&P 500 rose 7.8% and 5.8%, respectively, while the tech-heavy Nasdaq gained 2.8%. (Source: finance.yahoo 4/1/2021)
During the quarter, newly elected President Biden introduced his $1.9 trillion American Rescue Plan. He also introduced at the end of the quarter, an outline of his infrastructure spending plan, which quoted a $2.3 trillion dollar price tag. This proposed plan is expected to focus on a broad range of infrastructural activities like; developing roads, airports, safe water supplies and greener technology. This plan could rise to an even higher dollar amount and it comes with a proposal to raise the corporate tax rate from 21% to 28% (after it was lowered from 35% to 21% in 2017). (Source: finance.yahoo 4/1/2021)
At the March Federal Reserve monetary policy meeting, the Fed upgraded its economic growth outlook for 2021 to 6.5%, up significantly from its last projection of 4.2%. They also projected unemployment rates to dip to 4.5% and inflation to rise to 2.4% by the end of 2021. Despite the more positive outlook, the Fed did not change its near-zero interest rates decision through the end of 2023. In response, the DJIA reached a record high of over 33,000. (Source: finance.yahoo 3/17/2021)
In a joint appearance in front of the U.S. House Committee on Financial Services on March 23, Treasury Secretary Janet Yellen stated, "We are meeting at a hopeful moment for the economy — but still a daunting one. While we are seeing signs of recovery, we should be clear-eyed about the hole we're digging out of." Fed Chair Jerome Powell added that while the housing market has fully recovered from the downturn, that “Business investment and manufacturing production have picked up, but spending on services remains low.” (Source: nbcnews.com 3/23/2021)
During the quarter, many consumers' options were still limited by the need to still social distance. Normalization of behavior following mass vaccination could mean a major uptick of consumer services, which would drive an overall Gross Domestic Product (GDP) recovery. The job market is also projected to recover in tandem with consumer services, as the service sector accounts for most of the lost jobs from the pandemic. Another massive stimulus injection started reaching eligible Americans as a result of the March 2021 government stimulus bill. Households and firms alike benefited thanks to record stimulus in 2020, however, the U.S. federal deficit reached its highest level outside of World War II. Although this becomes a bet that the U.S. economy will recover from the pandemic, the totality of new debt still is at a very high amount.
The consensus remains that economic recovery is still largely based on the containment of the virus and the progression of vaccination distribution. The quarter closed with further distribution of the vaccine combined with consumer activity, continued re-openings and
unemployment reduction being very hopeful.