Investment Review for First Quarter 2021

by John Gullo, MBA, CFA, CFP®, CIMA® Apr 19, 2021 Financial Planning, Investment Consulting

2021-03-31 - Fifteen Minute Financial Update Video


A good start to the year.

Early gains in 2021 were heavily influenced by two factors: the $1.9 trillion of additional fiscal stimulus and increased vaccination rates. Those two factors helped global stocks continue their advance in the first three months of the year. While global stocks as a whole increased 4.6%, it was U.S. small and mid-sized companies that benefited most from hopes that smaller businesses would indeed survive, and the real economy would continue to improve.

Major asset class returns.

  Q1 2021 2020
Core Bonds – Taxable -3.1% 7.4%
Core Bonds – Municipal -0.5% 5.1%
Global Stocks (as a whole) 4.6% 16.3%
U.S. Large Stocks 6.2% 18.4%
U.S. Mid Stocks 13.5% 13.7%
U.S. Small Stocks 18.2% 11.3%
Foreign Developed Stocks 3.5% 7.8%
Emerging Market Stocks 2.3% 18.3%
Commodities 6.9% -3.1%
Real Estate 7.7% -11.1%


Fiscal stimulus. 

The American Rescue Plan was signed into law on March 11. This was the third major stimulus bill from Washington in less than one year. In total, this round of stimulus was $1.9 trillion. When combined with the $2.3 trillion CARES Act and the $900 billion Coronavirus Response and Relief Supplemental Appropriations Act, total fiscal stimulus now exceeds $5 trillion.


Vaccinations have increased significantly in the U.S. and are playing a key role in economic recovery. At year-end, the number of first vaccinations was just shy of 400,000 per day. This increased to over 950,000 per day at the end of January, to over 1 million by the end of February, and by quarter-end, the U.S. was administering 1.6 million first doses per day. When added up, 100 million people had received at least one dose in the U.S. by quarter-end.

When looking across the country, over half of the states in the union had administered at least one shot to 30% or more of their population by quarter-end. In comparison, Canada and Mexico’s first dose vaccination rates were at 14% and 6% respectively, while the four largest European Union countries achieved rates of 12% or less. In contrast, Israel and the U.K. have been very successful with first dose vaccination rates of 46% and 59% respectively.

10-year Treasury.  

Interest rate movements were another significant event in the first quarter. In early 2020, prior to the pandemic, the interest rate on a U.S. 10-year Treasury bond was over 1.8%. The rate fell dramatically as the Federal Reserve implemented significant monetary easing to help stimulate the economy. In fact, the interest rate was as low as 0.52% in early August of 2020. Fast forward a few months, and things look much different. With trillions of stimulus dollars pushed into the economy, millions of vaccinations per week occurring, and renewed confidence in the economic recovery, the interest rate on the 10-year treasury rose from 0.93% to 1.74% in just three months.

Bond returns and borrowing costs.   

With longer-term interest rates rising, what does that mean for the economy and investors? First, when interest rates rise, bond prices fall. The 0.81% increase in the 10-year treasury rate caused aggregate bond prices to fall 3.1% during the first quarter of 2021.

Second, an increase in interest rates means an increase in borrowing costs. The interest rate on a 30-year mortgage increased from 2.67% at the start of Q1 2021 to 3.18% at quarter-end. With borrowing costs higher, mortgage applications fell during the quarter. While there has been sizable home buying demand for the past several quarters as the economy entered the recovery phase until recently rising home prices were offset by reduced borrowing costs. With mortgage rates now on the rise, the red-hot housing market may show signs of cooling in the months to come.

Federal Reserve. 

While longer-term interest rates (such as the 10-year treasury rate) rose during the quarter, that was not true for shorter-term interest rates. In fact, the interest rate on government securities maturing in less than one year remains near zero. This is largely due to the Federal Reserve’s influence. Jerome Powell and other Federal Reserve Board members have expressed the desire to keep short-term interest rates lower for longer in hopes of bringing employment levels back to pre-recessionary levels. In addition, the Federal Reserve continues to stimulate the economy by expanding its balance sheet (which now exceeds $7.5 trillion) by an additional $120 billion per month. The question is, will continued stimulus from the Federal Reserve (in the form of low short-term interest rates and additional asset purchases) when combined with the massive fiscal stimulus we discussed earlier lead to inflation?


This publication contains general information that is not suitable for everyone. All material presented is compiled from sources believed to be reliable. Accuracy, however, cannot be guaranteed. Further, the information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this publication will come to pass. Past performance may not be indicative of future results. All investments contain risk and may lose value. © January 2021 JSG