First Quarter Comes to a Close

We have come to the end of a first quarter that had plenty of developments. One of the most notable was the increase in the 10-year yield from .91% on January 1st to 1.73% currently. This move higher in rates prompted a rotation out of many tech stocks into more cyclical sectors like Energy and Financials. Many of last year’s winners saw significant declines with Zoom dropping 45% and Peleton dropping 43% from their respective highs. On the flip side Exxon was up 36% and Wells Fargo was up 31%.

Another development was the GameStop phenomenon, which we addressed here. While GameStop mania peaked in late January, there are is still a lot of speculative activity taking place in the name today.

Let’s quickly look at some charts to check up on a number of other topics.

Earnings

The first quarter saw more companies in the S&P 500 raise earnings guidance than at any other time in the last five years. We will keep an eye on this trend as the year progresses. In the long run company earnings drive stock prices.

Consumer Confidence

The Conference Board’s Consumer Confidence survey surged to its highest level since the pandemic started. While obviously there is still a long way to go to get back to pre-Covid levels, this increase supports the idea that there will be a surge in spending as the economy continues to reopen.

Fed Interest Rate Hikes

While some members of the Federal Reserve have indicated there may not be any rate hikes until 2024, the futures market has seen odds of a rate hike as early as 2022 go from 20% at the start of the year to almost 80% now. We expect that volatility in financial markets will increase when the Fed begins to signal that interest rate hikes are on the table.

Texas Covid Update

While almost any one who wants a vaccine is expected to have that opportunity by the end of April, Covid has become much less of a concern for financial markets. One big positive has been the fact that Texas has seen new cases continue to plummet despite eliminating all restrictions three weeks ago. Some health experts are hopeful that some states could be getting close to herd immunity between the combination of people who have already been infected and those who have been vaccinated. We don’t know if we are close to herd immunity or not, but it is very good to see cases continue to decline in a state that has no restrictions.

Source: worldometers.info

While most bond funds saw losses in the first quarter as interest rates on government and corporate bonds shot higher, stocks weathered the increase relatively well and ended in positive territory. In the second quarter we will see if company earnings continue to exceed expectations, and will also be closely watching to see if the pace of interest rate increases moderates.