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2021 Q1 Market Commentary: Then vs. Now

Last year when I sat down to write my first quarter market commentary, lockdowns had just started and we were all adjusting to a new world of mask-wearing and social distancing. It’s been a long twelve months since then, and it’s hard to comprehend all that has changed in that time. We are not out of the woods yet and the alarming COVID case counts coming from some parts of the world should give us pause, but at least we can finally see the light at the end of this tunnel. Let’s take a look at where we were twelve months ago compared to where we are now in a few important areas. 


Twelve months ago there wasn’t much hope for a vaccine in the near future. We knew that historically, vaccines had always taken many years to develop. Some experts were optimistically saying we might be able to get a vaccine in 12-18 months. Using Messenger RNA (mRNA) to make a vaccine for humans had never been done before and there were doubts it could be successful.

Now, multiple vaccines have been developed and approved using the mRNA approach. As of April 20, 2021, over 85 million Americans are fully vaccinated and over 132 million Americans have received at least one dose of the vaccine. That’s almost 40% of the total population! Our biggest challenges in the U.S. right now are overcoming vaccine hesitancy and determining if the vaccines are safe for children. There is also still a lot of work to be done around the world as many poorer countries don’t yet have access to vaccines.

The unemployment rate rose to a record high of 14.7% in April 2020, but it’s now back down to 6%. This is below where it was prior to the pandemic, but the recovery so far has been swift.

US GDP fell 5.4% in March 2020 and 11.3% in April 2020. By the third quarter, the reversal had already started as GDP increased 33%, followed by a 4% increase in the 4th quarter, and an estimated 5% in the first quarter of this year. Some think the economy could grow 8% this year, something it hasn’t done since 1951!

By early April 2020, less than 100,000 people per day were passing through TSA checkpoints at airports, compared to over 2,000,000 people per day one year earlier. We are now back to over 1,500,000 people per day passing through TSA checkpoints. 

Restaurant traffic came to a virtual standstill with a 100% decline in seated restaurant diners for most of April. As lockdowns and capacity restrictions ease, restaurants are quickly filling back up.

All these data points represent an economy that looks vastly different from the one twelve months ago. Many of these numbers will continue to improve as more of the country gets vaccinated and businesses open back up. There will be challenges ahead and it will take some time to get the economy back to where it was before COVID, but at the moment we seem to be on the right track.

Stock Market

While the economy is still in the early stages of recovery, the stock market has gone beyond recovering lost ground and is well above pre-pandemic levels. The S&P 500 saw its’ fastest ever 30% drawdown in the first quarter of 2020, but in the twelve months since, it is up over 56%. Small-cap stocks suffered the worst performance of all asset classes in the first quarter of 2020, with a decline of 31%. In the twelve months since they are up an astonishing 95%! It’s hard to find an area of the stock market that hasn’t seen a drastic rebound over the past twelve months. International developed and emerging market stocks were down 23 and 24% in the first quarter of 2020 but are up 45% and 58% respectively in the twelve months since. REITs were down 23% but have bounced back over 34%. 

The first quarter of 2021 continued what has been an incredible run over the past twelve months as nearly every area of the stock market posted positive returns. We also started to see a shift between growth and value stocks in the first quarter of 2021. The S&P 500 Value index was up 11% compared to 2% for the S&P 500 Growth index and the Russell 2000 Value index was up 62% compared to 36% for the Russell 2000 Growth index.

Bond Market

The bond market is one area where things look worse than they did twelve months ago. Bonds did exactly what we want them to do in the first quarter last year, helping to cushion the losses in the stock market. The Barclays US Aggregate Index was up 3% for the quarter and US Treasuries performed even better, with an intermediate-term Treasury bond fund up over 7% and a long-term Treasury bond fund up almost 22%.

The first quarter of 2021 saw interest rates begin to rise as the outlook for the economy improved. This led the Barclays US Aggregate Index and the intermediate-term Treasury fund to lose 3% and the long-term Treasury bond fund to fall 13%. In spite of these shorter-term losses, the Barclays US Aggregate Index is still up a little less than 1% over the past 12 months. In spite of the challenges in the bond market in recent months, we still believe bonds are an important part of your portfolio. 

What Didn’t Change

While much has changed over the past twelve months, some things haven’t, like the investment advice we provide clients. In March 2020, we reached out to each of our investment clients as the markets were selling off. Our advice at the time was not to panic and not to make any drastic investment changes. Instead, we looked at how diversified portfolios were doing compared to the overall stock market, as bonds were providing the buffer we expect them to. We identified opportunities to harvest tax losses by selling certain investments and replacing them with similar but not identical investments. We reviewed cash reserves to make sure clients had enough to get them through a potentially prolonged downturn in the market. And in some cases, we rebalanced portfolios if the allocations were out of line with the targets.

Even though the world looks a lot different now, our fundamental principles of investment advice remain the same:

  1. Develop an appropriate asset allocation.
  2. Rebalance the portfolio periodically.
  3. Maintain a cash reserve.
  4. Diversify broadly.
  5. Keep costs low.
  6. Be tax-aware.

The past twelve months have taught us all many lessons in life and investing. We’ve learned just how much can change in a short amount of time and how quickly we can adapt to a new world. We’ve also learned that some things in life never change and we’ve discovered what is most important in our lives.

As we all get vaccinated and finally have the ability to reconnect with family and friends for the first time in a year, keep these lessons in mind. The world will continue to change and we’ll be forced to adapt, but there are certain principles that live on forever. These are the principles that should guide you in both investing and in life.

-Chris Benson, CPA, PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures for more information.