Investment Quarterly Market Update - Santander
Santander Investment Services provides a Quarterly Market Update prepared Brinker Capital Investments (formerly CLS Investments) for our customers to stay up-to-date on the latest insights.
The following commentary - provided by Santander Investment Services' Investment Thought Leadership partner, Brinker Capital Investments (formerly CLS Investments) - summarizes prior financial market activity, and uses data obtained from public sources. This commentary is intended for one-on-one use with a client's financial advisor only, as a resource to manage assets and evaluate investment portfolio performance.
As we continue to navigate this challenging environment, all of us at Brinker (Legacy CLS Investments) send our best wishes to you, your families, friends, and those impacted by COVID-19. We hope you find our comments and charts on the markets, economy, and portfolio positioning of value. We welcome your feedback and thank you for the trust and confidence you have placed in Brinker Capital Investments.
A look back...
Growth spurt: Passage of the $1.9 trillion American Rescue Plan Act accelerated growth expectations, but also amplified fears of future inflation and whether the Federal Reserve can keep the Fed Funds rate at zero through 2023. The U.S. bond-market (as represented by the Bloomberg Barclay’s Capital U.S. Aggregate Bond Index) reacted accordingly, sending longer-dated yields higher and bond prices lower. The 10-year Treasury yield settled at 1.74%, rising 81 basis points for the quarter. Despite these concerns, returns for risk-assets were positive, as corporate earnings exceeded expectations and vaccine inoculations accelerated. For the quarter, the S&P 500 was up 6.17%.
Vintage is “in”: Investors rotated out of technology and growth companies and into more cyclical parts of the economy as interest rates rose. The shift favored value stocks (as represented by the Russell 1000 Value Index), which added 11.26% compared to 0.94% for growth stocks (as represented by the Russell 1000 Growth Index). International equities (as represented by the Morningstar Global ex U.S. Large-Mid Index) also benefitted from the improved global outlook, marked by developed markets (as represented by the Morningstar Developed Markets ex U.S. Large-Mid Index) returning 3.72%, while emerging markets (as represented by the Morningstar Emerging Markets Large-Mid Index) gained 2.77%.
A bumpy ride: Volatility remained elevated relative to pre-pandemic levels. Consider that the number of days the S&P 500 exceeded +1% or -1% was 18, compared to an average of 14 days per quarter during the previous 40 quarters. Volatility in the bond market picked up as well, with the Bloomberg Barclays US Aggregate Bond Index declining 3.37%.
Source for all data in this section: Morningstar Direct as of 3/31/2021
Something to Think About...
Cooking with gas: Most forecasts for 2021 US GDP exceed 6% (Source: Bloomberg as of 3/31/2021). If achieved, that would mark the greatest growth rate since the early 1980s. An unprecedented level of fiscal and monetary stimulus initiated the recovery; now strong corporate and consumer balance sheets, ample capacity and pent-up demand are driving growth.
Do we have to pay for that?: The US debt to GDP ratio nears an eye popping 130% (Source: Federal Reserve Economic Database as of 3/31/2021). While concerning, it is important to consider that borrowing costs are near all-time lows, and the risk of not providing enough economic support likely outweighed the alternative. At present, investors seem comfortable with elevated levels of borrowing and spending. As the economy normalizes, the debt/GDP ratio should fall.
That house sold for what?!: The US consumer is buoyed by an historically strong housing market. A combination of low interest rates, high saving rates, demographics, and low supply has lifted prices nationwide. The supply shortage is unprecedented, as there are actually more realtors than homes for sale in the US.
(Source: National Association of Realtors as of 3/22/2021)
Sticking to the script: We are optimistic about the outlook for the economy. We expect markets to remain volatile and returns a bit muted. Within equities, we favor US small caps, US Value stocks and emerging markets, which may do well as global growth accelerates; within fixed income, we favor shorter duration and Treasury Inflation Protected Securities.
A safe distance: Progress on the re-opening of the economy may favor value stocks. Keeping active: Given our expectations for heightened volatility, and more muted return streams at the asset class level, we favor exposure to actively managed strategies (factor-based equity Exchange Traded Funds, or ETFs; actively managed bond ETFs; and Separately Managed Accounts, or SMAs) across domestic and international equities, fixed income and commodities. We see 2021 shaping up to be a year and an environment that could be favorable for broadly diversified portfolios.
As always, a sincere thank you for reading. If you have any questions or feedback, please reach out to your Santander Investment Services Financial Consultant.
This material is authored by Brinker Capital Investments and is being presented by Santander Investment Services. The information contained in this material should not be construed as an endorsement or adoption of any kind by Santander Investment Services or Santander Securities LLC, who are not affiliated with Brinker Capital Investments or Orion Advisor Solutions. The views expressed herein are exclusively those of Brinker Capital Investments, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of Brinker Capital Investments. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed here and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security's price or value may rise or fall.
The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.
The Barclay’s Capital U.S. Aggregate Bond® Index measures the performance of the total United States investment-grade bond market. All indices are unmanaged and investors cannot invest directly into an index.
The Russell 1000 Index is a comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. The Russell 1000 Index is reconstituted completely on an annual basis to ensure the index measures the large cap segment consistently and objectively over time. Each security in the Russell 1000 is float-adjusted market capitalization-weighted to ensure investable positions. The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. All indices are unmanaged and investors cannot invest directly into an index.
The Morningstar Global ex U.S. Large-Mid Index is an index that measures the performance of Global Markets (ex-U.S.) equity markets targeting the top 90% of stocks by market capitalization. All indices are unmanaged and investors cannot invest directly into an index.
The Morningstar Developed Markets ex U.S. Large-Mid Index is an index that measures the performance of developed markets ex-U.S. equity markets targeting the top 90% of stocks by market capitalization. All indices are unmanaged and investors cannot invest directly into an index.
The Morningstar Emerging Markets Large-Mid Index is an index that measures the performance of emerging markets targeting the top 90% of stocks by market capitalization. All indices are unmanaged and investors cannot invest directly into an index.
Past performance is not a guide to future performance.
Exchange-traded funds (ETFs) are SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonds, or other assets. In return, investors receive an interest in the fund. Most ETFs are professionally managed by SEC-registered investment advisers. Some ETFs are passively-managed funds that seek to achieve the same return as a particular market index (often called index funds), while others are actively managed funds that buy or sell investments consistent with a stated investment objective. ETFs are not mutual funds. However, they combine features of a mutual fund, which can only be purchased or redeemed at the end of each trading day at its NAV per share, with the ability to trade throughout the day on a national securities exchange at market prices. Before investing in an ETF, you should read its summary prospectus and its full prospectus, which provide detailed information on the ETF’s investment objective, principal investment strategies, risks, costs, and historical performance (if any).
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