Q1 2021 Market Insights
We hope this finds you enjoying a warm, welcoming spring. After a long winter this time of year in Jackson often greets us with a glimpse of the highly anticipated summer days to come. This year it feels extra rewarding as we step outside for an afternoon walk or bike ride and wave to friends and neighbors we haven’t seen it what feels like an eternity. A little over a year ago Covid-19 began to upend our lives. Our country, communities and the market however remained resilient, and in many ways became stronger. Fueled by the previous year’s performance and positive economic data the S&P notched new records finishing the first quarter of 2021 up 5.8%. As we look ahead we believe the U.S. economy is poised for some of the strongest growth since the 80’s, however concerns over inflation and rising interest rates could lead to continued market volatility.
Here in Jackson we set a few records of our own. For skiers and snowboarders, almost every day of February was a powder day as 172” fell on Rendezvous Bowl at Jackson Hole Mountain Resort making it the third snowiest month on record. This also contributed to a busy two months for Teton County Search and Rescue. Real Estate activity continued to build on a record-setting 2020 as volume for the last 12-months ending March-31 surged to nearly $2.1 billion. The average home sale price is also up 31% year-over-year. Our neighboring national parks felt the frenzy too as visitation numbers soared during the winter months helping to boost sales and use tax collections in Teton County by 20.8% year-over-year. It was a busy winter in the valley and recent data suggest the trend is likely to continue.
The first quarter saw a steady rise in investor confidence bolstered by nationwide vaccine programs, continued support from the government and Federal Reserve, and positive economic data. Investors however still experienced bouts of volatility as retail traders challenged market fundamentals with meme stocks and inflation concerns led to a quick jump in yields. Such events helped fuel a sector rotation across the major indexes from growth stocks, such as technology stocks, to cyclicals. The rotation is a sign of optimism for an economic recovery, as cyclical equities often shine during periods of economic expansion. All three major indexes reached new milestones and finished up for the first quarter of the new year.
As the economy moves forward it’s likely we’ll see a confluence of trends that differ from the events realized after the 2008 financial crisis. This includes prolonged fiscal and monetary support from the government, strong spending on durable goods and housing from the private sector, and a continued rotation in equity markets as evidence of an economic recovery become more prevalent. We anticipate the U.S. is positioned to post its strongest annual gross domestic product in decades and pricing of base metals and other commodities will likely continue to rise. All the ingredients exist for a continued recovery and a strong 2021; however, the lingering threat of inflation and fast-rising interest rates could increase sensitivity in markets and provide potential headwinds.
Despite high valuations in some sectors of equity markets, investment opportunities still exist. The continued shift in equity leadership towards cyclical assets, such as small cap stocks and emerging markets, provides investors an opportunity to make tactical adjustments to portfolio allocations. The number of small cap firms with negative cash flow has continued to shrink as access to low-cost debt has helped fund growth and innovation. As for emerging markets, dollar weakness and a likely pickup in global trade should provide tailwinds for international markets. Developed market equities however may continue to struggle as political dissention continues. Investors could also benefit from exposure to sectors that would gain from rising commodity prices. It’s also likely the post-2008 era of low volatility is behind us and that a combination of macro and geopolitical elements could provide a rich environment for active asset management.
The pandemic has reshaped the U.S. and global economies and will continue to create a host of opportunities and commensurate risks for investors. We believe investors should position portfolios accordingly in preparation for these changes. We wish you and your family well and look forward to continued growth and prosperity in 2021.
Sincerely,
The Wind River Capital Management Team
