David K. MacLeod, CFP®, CFA

As we continue into 2021, here’s a look back at the first quarter of the year.

Markets

Small company stocks and value stocks led the way, returning 18% and 11%, respectively, while technology and momentum stocks lagged behind. The S&P 500 gained 6% despite declines from many of the hottest stocks in 2020. For example, Tesla stock declined 8%, Zoom dropped 11%, and Amazon.com was down 5%.

The first quarter was notable as the largest quarterly outperformance of value versus growth stocks in 20 years.  Stock market volatility generally fell despite a handful of exceptions (GameStop, AMC, CBS). Bond returns were low as the 10-Year U.S. Treasury Bond yield rose from 0.9% to 1.7% during the quarter.

Wide distribution of the COVID-19 vaccine led to 3 out of 4 Americans over the age of 65 being vaccinated by the end of March. Since mid-January, new COVID-19 cases are down 95% and life has started to return to normal.

Economists expect the U.S. (and global) economic recovery to continue, leading to strong 7% real GDP growth and 4% unemployment by year-end. The markets and the Fed are continuing to watch inflation data amidst easy monetary policies from the Fed and high spending by Congress. However, inflation remains under control and is still below the Fed’s 2% target.

Taxes

Congress passed the third major COVID-19 relief package in March. Here are a few of the significant provisions in the $1.9 trillion spending bill known as the American Rescue Plan Act of 2021:

-       Rebate payments of $1,400 to every adult and child via direct deposit or debit card (phased-out for higher income households). Note that the payments are not taxable income.

-       Child tax credit expanded from $2,000 to $3,000 per child (up to $3,600 for children under the age of 6). Also phased-out for higher income households.

-       Obamacare health insurance premium assistance tax credits increased for 2021 and 2022.

-       Student loan forgiveness is income tax-free through 2025.

-       Required minimum distributions (RMDs) from retirement accounts are not waived for 2021.

Due to many of the tax provisions of the bill affecting 2020 tax returns, the IRS delayed the 2020 tax filing due date to May 17, 2021.

If you have specific questions or would like more information, schedule a 15-minute discovery call with a fee-only financial advisor.