Second Quarter 2021 Review

U.S. stocks marched higher in the first quarter, with the S&P 500 pushing through 17 new highs and reaching 4,000 for the first time. “Risk-on” sentiment is being driven by improving economic data, a sense that the pandemic is nearing its end in the US, and what is perhaps the greatest fiscal stimulus experiment in the country’s history. The latest stimulus installment, at $1.9 trillion, amounts to a staggering 9% of GDP.

The first quarter also saw surging U.S. Treasury bond yields, with the 10-year U.S. Treasury rising by approximately 80 basis points in the first three months—the third largest quarterly increase in over 10 years. In a sense, long-term interest rates in Q1 were telling us what stocks have been telling us for almost a year now: that the recession is behind us and the economy is positioned for a strong rebound, with growing concerns of inflationary pressures down the road.