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Energy & Financials Lead the Market

Growth/technology stocks were the biggest winners in 2020 due to COVID and the associated lockdowns. First-quarter large technology earnings have been robust; however, as the US economy continues to open, technology stocks may have difficulty continuing this trend. People are looking for in-person experiences at all levels. There is just so much virtual time and TV time that a person can take.

The energy and financial sectors are the best-performing sectors year-to-date.

GDP Growth Rate

COVID spending of approximately $6 trillion ($41,870/person) boosts consumption and asset prices. The US gross domestic product (the total value of all goods and services) increased an astonishing 6.4%. Personal consumption, the most significant part of the economy, surged an annualized 10.7%, the second-fastest pace since the 1960s. Economic output is now only 0.9% below peak 4Q19 real GDP.

Rates Stabilizing

The rising GDP numbers could be a sign of looming inflation. The Federal Reserve has indicated that this inflation is transitory (temporary) and should taper off as things get back to “normal.” Investors have reacted by requiring a higher yield on their money invested in US Treasuries. The 10-year yield has increased from ~0.95% to ~1.50% YTD. The rates appear to be stabilizing at this level. If the Fed is correctly assuming this is temporary inflation, there shouldn’t be an issue. This inflation needs to be closely monitored as once inflation starts, it can be very painful to stop.

ETF of the Week: DJ Industrial Average ETF (DIA)

SPDR Dow Jones Industrial Average ETF Trust (DIA) was the best performing ETF last week. The index consists of 30 large-cap domestic stocks selected by an investment committee. This index is price-weighted, so a stock with a higher price impacts the index greater than a lower-priced stock.


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