Yeah, we'll get higher and higher, Straight up we'll climb . . . Oh, we'll get higher and higher, Who knows what we'll find

Van Halen, "Dreams"

MARKET INSIGHTS

Everywhere we look this quarter, things seem to be higher. U.S. stocks started the year at an all-time high, subsequently set fifteen more all-time highs during the quarter, and closed out the quarter up 6%, just a hair shy of another record.

Value stocks rallied 11% over the last three months, continuing their strong performance since the announcement last November 8th of an effective vaccine against COVID-19. In a comeback for the ages, Value has now nearly caught Growth since the post-COVID low set in March of 2020. Nearly.

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CORE EQUITY COMMENTARY

Stocks continued to rally in the first quarter of 2021, with the S&P 500, the Dow Jones Industrials, and the tech-heavy Nasdaq posting fresh all-time highs. Stocks were ushered higher by a strong fourth quarter earnings season and progressively better news regarding the availability and administration of vaccines. However, late in the quarter, equities began to feel pressure from rising Treasury bond yields, particularly in the benchmark 10-year Treasury note. Yields on the 10-year rose from under 1% at the beginning of the year to over 1.7% at the end of the quarter. This extremely swift rise came about as bond market investors grew increasingly concerned that all of the extraordinary monetary and fiscal policies enacted since the pandemic began, taken together, could lead to a powerful economic snap-back, and with it, potentially higher inflation. It seems the debate is no longer whether the economy is stuck in a deflationary pattern, but rather how much inflation could surprise to the upside and will it cause the Federal Reserve to tighten monetary policy more quickly than had been expected.

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FIXED INCOME

Interest rates on longer-term bonds surged this quarter from an expected increase in inflation and economic growth. Yields on the widely quoted ten-year US Treasury bond jumped to 1.7% from 0.9% at the start of the year. Due to the inverse relationship of yields and prices, valuations pulled back across most of the bond market. The move in rates wreaked havoc on bonds with longer time to maturity. Thirty-year US Treasuries lost almost 16% of their value this quarter. The Aggregate Bond Index1 , which measures performance across a range of bond maturities, dropped over 3%.

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