April 2021 – Quarterly Review of Capital Markets

The broad U.S. stock market had another strong quarter, returning 6.3 percent, as robust corporate earnings growth eclipsed concerns over rising interest rates. Its trailing 12-month return was 62.3 percent, marking the best 12-month return in more than 20 years. This surge retraces a period that began near the market bottom, following its epic collapse in the wake of the pandemic-induced global economic shutdown.

Our favored asset classes led all others within the U.S. stock market. Overseas market returns lagged the U.S. market but were positive. The overall bond market registered losses in the face of generally rising interest rates. Gold turned in a 10 percent loss for the quarter.
We are making no changes to our sample allocations that appear in the tables nearby.

Consumer Prices
Preliminary data revealed rising consumer prices during the first quarter. AIER’s Everyday Price Index (EPI) increased by 2.9 percent for the three months or 11.9 percent on an annualized basis. The EPI is up 4.4 percent over the past twelve months, the fastest pace since November 2011. However, as AIER notes “Like many measures of activity within the economy, some prices continue to be distorted by government restrictions on consumers and businesses. As restrictions are lifted and activity returns to normal, prices will begin to reflect true market forces.”

The Consumer Price Index is broader than the EPI because it includes infrequently purchased, big-ticket items and contractually fixed items. It increased by 1.7 percent over the first quarter, for an annualized rate of 6.9 percent, Over the past 12 months the CPI increased by 2.6 percent.

It is unclear whether rising prices are simply attributable to an economy rebounding form the brief but severe global economic shutdown of early last year, or whether a longer-term inflationary trend is underway, perhaps triggered by the Fed’s aggressive monetary expansion and vast expansion of actual and anticipated federal spending.
Inflationary expectations increased notably during the first quarter. At the end of March, the bond market was signaling price inflation of 2.37 percent over the next ten years versus 1.99 percent at the end of last quarter. (Continued)

Also In this Issue
Sound Strategies: Health Savings Accounts
Sample Portfolio Returns
The High-yield Dow Investment Strategy
Recent Market Statistics
Asset Class Investment Vehicles

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