Skip to main content Download Acrobat Reader 5.0 or higher to view PDF files.
Century Bank
Online Banking Login
Available when representatives are online.

First Quarter 2021

We have surpassed the one-year anniversary of COVID-19 coming to the U.S. and disrupting our everyday life. It appears we are on an upswing given the vaccine distribution, despite the road bumps in acquiring vaccine appointments.
In the first quarter of 2021, developed equity markets continued their strong returns. However, emerging markets trailed developed. We did see a rotation within U.S. equities during the first quarter, away from the FAAMNG (Facebook, Apple, Amazon, Microsoft, Netflix, and Google) and into “recovery” stocks or cyclical stocks. Longer maturity fixed income returns were negative due to the steepening yield curve during the quarter.
Stimulus, Stimulus, Stimulus
Governments around the world continue to seek ways to “prime the pump” of their economies to keep their economies from slipping back into recession territory. The most recent example has been the $1.9 trillion that President Biden signed into law in March. This targeted direct payments for citizens, funding for municipalities, COVID vaccine funding, expanded unemployment benefits, as well as several other priorities set forth by the administration. This will hopefully buy the U.S. economy enough time for the country to reach herd immunity and the economy can open fully.
Vaccine distribution can be considered a form of stimulus because it allows people to return to normal spending habits. While distribution at the local level has presented some challenges, it continues to be sorted out and vaccine production climbs every day. Additionally, the U.S. savings rates at both the personal and corporate level sits at high levels. Bloomberg Economics estimates excess savings of $1.7 trillion or 8.7% of disposable income, in 2020. This is more than double pre-pandemic level. High personal savings rate combined with a historically low Household Debt Service ratio (defined as total household debt payments to total disposable income) allows for individuals to spend their excess savings on consumption of goods, services or reinvested in stocks.
Bloomberg graph on U.S. household debt service ratio.
*Source: Bloomberg
While the U.S. consumer is poised to increase spending, corporations are also sitting on all time high cash hoards. S&P 500 total cash and equivalents ex-Financials, Real Estate, and Utilities are sitting above $1.3 trillion, which

can be used for stock repurchases, dividend increases, or capital expenditures to fulfill demand as the economy recovers. As a comparison, cash and equivalents was $830 billion in 2019.

Inflation Fears

The U.S. economy has been primed and a recovery is near, so what is the worry? Well, in one word - inflation. With all the previous stimulus and forward-looking stimulus, bond investors are starting to bid up 10-year yields in anticipation of inflation. The 10-year yield was under 1% at the beginning of the year and is currently sitting near 1.7%. This has spooked some investors that rapid inflation is on the way; however, the current measure of inflation is sitting under the Federal Reserve’s target of 2%. Further complicating the matter is how we have historically measured inflation. Inflation is measured by store visits based on a basket of goods and services. There has been discussion on whether the pandemic has permanently changed consumer behavior due to the rapid rise in e-commerce transactions, which are more difficult to measure prices. While we believe there could be pockets of inflation due to supply bottlenecks and pent-up demand, overall inflation should be kept in check by aging demographics, technology advancements and automation.

Bloomberg chart showing high yield to maturity.

*Source: Bloomberg

Our focus list performed well during the quarter, 8.97% versus S&P 500 of 6.17%, with positive contributions from Goldman Sachs and American Express. Both posted strong double-digit returns. Goldman Sachs benefitted from a near record pipeline of investment deals, strong fixed income and equity trading, and affirmed financial outlook targets.

American Express benefitted from the vaccine rollout that should improve the travel spending outlook as well as declining charge offs and delinquencies during the quarter.
In the first quarter of 2021, the S&P 500 returned 6.17%, versus 3.61% for MSCI EAFE, 2.21% for MSCI Emerging Markets and -3.37% for Bloomberg Barclays U.S. Aggregate. The U.S. led global returns due to its stronger roll out of vaccines coupled with many states easing COVID restrictions. Europe continues to face challenges in its vaccine rollout and a surge in cases. Emerging markets are lagging developed markets as inflation fears challenged some riskier asset classes. Longer duration fixed income returns were negative during the quarter due to rising 10-year interest rate yields.
The pandemic continues to be a risk to the economy as we have seen a recent increase in cases. However, with the vaccine roll out, significant stimulus and historically low interest rates should provide support for equities in the near-term. Even with the recent increase in the 10-year treasury yield, bonds in general do not appear to be a compelling investment at this point in time.

Phil McManus
Chief Investment Officer
Wealth Management at Century Bank logo.
Not insured by FDIC or Any Other Government Agency. Not Bank Guaranteed. Not Bank Deposits or Obligations. May Lose Value.
The material provided on this website is for informational use only and is not intended for financial or investment advice. Century Bank and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.