For equities, Freedom is tilting towards industrials, banks, and value and away from developed international.
For fixed income, we are tilting toward high yield and preferred stocks and away from investment grade bonds.
March was an interesting month as some of the areas that have performed the best over the past year sold off. For the month, the following areas were down, Software -1.5%, Emerging Markets –3%, Biotech -3.5%, Oil –3.8%, SPACs -10%, and Solar –10%. However, you wouldn’t know it looking at the S&P 500 as it was up 4% for March (led by Utilities, Consumer Staples and Industrials). This is referred to as a “rotation in stocks” - when companies that were hot get cold and vice versa. In the bond market the U.S. Treasury yields rose 30 basis points pushing bond values, as measured by the U.S. Agg index down 1.3%.
The U.S. unemployment rate has declined, and we are seeing strong job growth in the services sector. The Consumer Confidence Index surged in March to its highest reading since Covid-19 shut down the world. Data from Chase Bank shows that stimulus spending is currently 20% higher than it was in 2019. Air travel and restaurant bookings are at their highest level since the pandemic began. Also, most economist expectations for full year GDP growth keep getting revised higher.
What We Are Doing
With the $1.9 trillion American Rescue Plan approved, averaging close to 3M vaccinations daily and the White House turning their attention to a huge infrastructure plan, we believe the markets have a lot more room to run. We’re investing in areas that should benefit from the world returning to normal, as well as potentially higher interest rates, such as industrials, banks and value. However, we believe longer term trends will continue to favor technology that we added to during their recent sell off.
We continue to be light on developed international equity exposure as Europe seems to be trailing the US with its vaccination progress. Although we don’t believe interest rates will rise at the same rate it has as over the past couple of months, they will likely continue to rise over the coming years. So, we decreased our exposure to investment grade fixed income and moved some to high yield and some to cash. Going forward we continue to favor high yield, preferred stocks, private debt and private real estate as a way to create income.