A Pulse Check on the Economy and Various Asset Classes

March 12, 2021

By Tim Courtney, Chief Investment Officer

The market dynamics we saw at the end of last year have continued into the first quarter of 2021. In essence, those dynamics assume an economic recovery and a return to some level of normalization.

New COVID-19 cases are well below the spike we experienced at year-end and more people are becoming vaccinated.1 This will allow for people to reengage in greater economic activity and help struggling businesses. So far, the market has liked what it is seeing.

As a result, many asset classes that struggled last year are beginning to make a comeback. Below, we examine some notable asset classes and where they stand today.

1. Small-cap and economically sensitive companies. Small companies and those that heavily depend on economic growth were hit hardest at the start of the pandemic. Small-cap stocks are now up 18.6% year-to-date with economically sensitive value stocks up 10.5%.2 We don’t expect this pace to continue for the rest of the year and markets will demand to see profits to support these prices, but it does show increasing confidence in an accelerating recovery.

2. Commodities. This is one of the hardest-hit sectors of the pandemic and worst-performing asset classes over the last decade. However, commodities have staged a rebound amid higher expected demand for raw materials. A broad basket of commodities is up 14.4% year-to-date3 while gold (a common fear measure) is down almost 9% year-to-date4 and has been falling recently as interest rates have recovered from their lows. These moves also appear to be the result of expected economic and interest rate normalization.

3. Bonds. Bonds, which had a great return last year, are turning lower for the time being as interest rates rise.5 Bonds are down 2.9% this year.6 Part of this reflects the frontloading of 2021s returns into 2020s returns. But rates moving higher is a healthy sign that markets are more confident and good news for bond investors since future expected returns are rising with rates. 

Most broad asset classes including large and international companies are positive year-to-date and are also confirming a healthier 2021. This is a welcome change from a year ago today when markets and interest rates were in free fall. There will be challenges this year as there always are. Investors will certainly begin to demand to see a recovery in profits to go along with the recovery in growth. 

For now the market sees this year playing out well. We’ll be closely monitoring first quarter earnings to see if they are lining up with the expectations.

If you have any questions about these current market conditions or your portfolio allocation, please contact your Exencial advisor.


1. The New York Times (data as of 3/10/21) – Coronavirus in the U.S.: Latest map and case count
2. Morningstar Direct (03/11/2021) – Russell 2000 TR Index, Russell 1000 Value Index
3. Morningstar Direct (03/11/2021) – DB Commodity TR Index
4. Yahoo! Finance (data as of 3/10/21) – SPDR Gold Shares (GLD)
5. Yahoo! Finance (3/4/21) – Fed Chair Powell: Fed will be ‘patient’ on keeping easy money policy
6. Yahoo! Finance (data as of 3/10/21) – Bloomberg Barclays US Aggregate Bond Index

The Russell 2000 index measures the performance of the 2,000 smaller companies that are included in the Russell 3000 Index, which itself is made up of nearly all U.S. stocks. The Russell 2000 is widely regarded as a bellwether of the U.S. economy because of its focus on smaller companies that focus on the U.S. market. Many investors compare small-cap mutual fund performance against the movements of the Russell 2000 index. It is seen as better reflecting opportunities in that entire sub-section of the market than narrower indices, which may contain biases or more stock-specific risks that can distort performance.

The Russell 1000® Value Index measures the performance of the large- cap value segment of the US equity universe. It includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values. The Russell 1000® Value Index is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics.

The Deutsche Bank Liquid Commodity Index (DBLCI) was launched in February 2003. It tracks the performance of six commodities in the energy, precious metals, industrial metals and grain sectors. The DBLCI has constant weightings for each of the six commodities and the index is rebalanced annually in the first week of November. Consequently, the weights fluctuate during the year according to the price movement of the underlying commodity futures.

The Bloomberg Barclays Aggregate Bond Index, is an index used by bond traders, mutual funds, and ETFs as a benchmark to measure their relative performance. The index includes government securities, mortgage-backed securities (MBS), asset-backed securities (ABS), and corporate securities to simulate the universe of bonds in the market.

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