Market Update – April 3, 2021

U.S. stocks finished higher during the holiday-shortened trading week, overcoming early volatility due to lingering effects from the Suez Canal shutdown and the liquidation of Archegos Capital, an over-leveraged investment entity that was forced to unwind its stock positions. Both the S&P 500 Index and the Dow Jones Industrial Average reached new record highs during the week. Expectations for increased economic growth brought on by the recovery and overwhelming government spending continue to fuel demand for stocks over more conservative options such as bonds and cash.

For the week, the S&P 500 Index finished up 1.1%, while the Dow Jones Industrial Average rose 0.2%. Year to date, the S&P is up 7.0%; the Dow has gained 8.3%. First-time unemployment claims surprisingly increased to 719,000 while continuing claims fell to 3.8 million – evidence that the labor market will remain in a state of flux until mass vaccinations take further hold. The U.S. will not reach “full” employment until the unemployment rate drops significantly and the labor participation rate climbs higher.

The U.S. housing market cooled off a bit, as pending home sales reported this week were down 10.6% in February due to a low inventory of homes and mortgage rates slightly increasing from historic lows. Worldwide manufacturing remained an economic bright spot; the key U.S. index measuring manufacturing growth achieved its highest reading since 1983, mirroring recent strong numbers reported throughout most of Asia and Europe.

President Biden released plans this week for an ambitious infrastructure spending bill, following on the heels of the recently passed coronavirus relief legislation. It will likely prove more challenging to reach agreement on this new round of spending because the proposal has been criticized by both Republican and Democrat members of Congress. While Republicans seem to be united against both the extent of the spending as well as provisions increasing corporate taxes, some Democrats feel that the plan is not expansive enough. While additional federal spending likely would propel economic growth even higher than currently forecast, inflationary pressure from trillions of incremental dollars could force the Federal Reserve to raise short-term interest rates sooner than expected.

Regardless of any legislative debates or developments in Washington, we believe the best way to manage through times of uncertainty is to hold true to the key principles of asset allocation, diversification and financial planning. One timely area of financial planning we suggest focusing on is tax planning. Although the IRS recently moved the personal tax filing deadline to May 17, we encourage you to reach out to your Wealth Advisor to discuss tax strategies for 2021. Please check out our 2021 tax guide to review useful information on tax rates, deductions, credits and deadlines. As always, please contact us with any questions. We are here for you every step of the way.

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