The stocks had a good run on the bourses in the first quarter of 2021. Markedly, the first quarter saw decent performances as the Dow Jones Industrial Average and the S&P 500 witnessed their fourth straight positive quarter (per a CNBC article).
Notably, cyclical sectors like industrial, financial, energy and consumer discretionary saw increased attention from investors in the last three months. Markedly, stocks within the cyclical sectors mostly behave in tandem with the prevalent economic conditions and when growth returns to normal levels, these sectors will automatically perform well.
The first quarter saw investors optimistic about a variety of factors like the passage of the $1.9-trillion coronavirus relief package, Fed’s decision to maintain rates near zero until 2023, accelerated coronavirus vaccine distributions and reopening of global economies. Notably, the central bank raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year.
The central bank has lifted its forecast for GDP growth to 6.5% in 2021 from 4.2% stated in December 2020. It has also raised the economic growth forecast from 3.2% to 3.3% for 2022. Moving on, growth is likely to cool down in 2023 to 2.2%. The Fed has predicted the longer-run growth measure at 2.3%.
Importantly, the Fed predicts unemployment to decline to 4.5% from 6.2% at present. This also compares favorably with the 5% forecast made in December 2020. The unemployment levels for 2022 and 2023 are expected at 4.2% and 3.7%, respectively. Moreover, the Fed has predicted the longer-run growth measure at 4%.
The Fed’s projections for core inflation as measured by personal consumption expenditures are 2.2% for 2021, 2% for 2022 and 2.1% for 2023 along with the longer-run measure at 2%.
Moreover, consumer confidence in the United States hit a one-year high mark in March. The Conference Board's measure of consumer confidence index stands at 109.7, comparing favorably with February’s reading of 90.4. The metric witnessed the largest increase since April 2003. Moreover, March’s reading beat the consensus estimate of 96.9, per a Reuters’ poll.
It is worth noting here that the University of Michigan’s final sentiment index also surged to 84.9, comparing favorably with March’s preliminary reading of 83. The metric also beat the median estimate of 83.6, per a Bloomberg poll. It is important to note that the survey has covered responses received through Feb 24 to Mar 22, according to the article mentioned above.
Encouragingly, President Joe Biden now aims at distribution of 200 million coronavirus vaccines within his first 100 days since joining office, per a CNBC article.
Furthermore, the recently-released robust job and manufacturing data majorly boosted market participants' confidence. The Department of Labor reported that the U.S. economy added 916,000 nonfarm jobs in March compared with an upwardly revised 468,000 in February. Going on, the Institute of Supply Management (ISM) reported that its manufacturing Purchasing Managers' Index (PMI) for March rose to 64.7% from 60.8% in February, marking the highest reading since December 1983 and the 10th consecutive month of growth. It is also worth noting here that, on Mar 31, President Joe Biden unveiled his $2.3-trillion infrastructure development plan that focuses on improving American infrastructure.
Meanwhile, rising 10-year Treasury Note yields along with the tax hike worries at times kept investors on the edge. The tax hike plan is likely to hurt companies’ earnings and equity allocations in the short term. Biden is expected to increase the corporate tax rate to 28% from 21% but keep it below the pre-Trump level of 35%. The Biden administration is also looking to raise the top marginal tax rate to 39.6% from 37% and taxing capital gains and dividends at a higher ordinary income tax rate.
ETFs Up More Than 30% YTD
Here we highlight some ETFs with a Zacks Rank #2 (Buy) that are up more than 30% in the year-to-date period:
SPDR S&P Retail ETF ( XRT Quick Quote XRT - Free Report) — up 42.6%
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&PRetail Select Industry Index. The fund provides exposure to the retail segment of the S&P TMI, which comprises the following sub-industries: Apparel Retail, Automotive Retail, Computer & Electronic Retail, Department Stores, Drug Retail, Food Retailers, General Merchandise Stores, Hypermarkets & Super Centers, Internet & Direct Marketing Retail, and Specialty Stores. It has AUM of $623.3 million and charges 0.35% in expense ratio (read:
5 Market-Beating Sector ETFs of March). Invesco S&P SmallCap Consumer Discretionary ETF ( PSCD Quick Quote PSCD - Free Report) — up 41.6%
The fund is based on the S&P SmallCap 600 Capped Consumer Discretionary Index. The index measures the overall performance of common stocks of U.S. consumer discretionary companies. These companies are principally engaged in providing consumer goods and services that are cyclical in nature, including retail, automotive, leisure and recreation, media and real estate. It has AUM of $106.4 million and charges 0.29% in expense ratio
First Trust Nasdaq Bank ETF ( FTXO Quick Quote FTXO - Free Report) — up 33.5%
The fund seeks investment results that correspond generally to the price and yield, before fees and expenses, of the Nasdaq US Smart Banks Index. The index is a modified factor weighted index, designed to provide exposure to US companies within the banking industry. It has an AUM of $227.3 million and charges 0.60% in expense ratio (read:
Top ETF Stories of First Quarter). SPDR S&P Regional Banking ETF ( KRE Quick Quote KRE - Free Report) — up 30.2%
The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Regional Banks Select Industry Index. It has AUM of $4.80 billion and charges 0.35% in expense ratio (read:
Bank ETFs Tumble on Archegos Downfall: What's in Store?). Want key ETF info delivered straight to your inbox?
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