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Q2 Market Outlook | Consumers Are Ready for Reopening

Q2 Market Outlook | Consumers Are Ready for Reopening

March 25, 2021
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Cetera Investment Management has released its 2021 Second Quarter Outlook. In this outlook, they discuss local economies reopening and investors’ optimism. Potential consumers are getting another check from the government and those in the upper tax brackets have been saving money, creating a tailwind for equities. However, bond investors see these growth prospects and are driving up bond yields, making equity investors nervous.

Q2 Outlook

We want our clients to know that we prioritize being diligent with our investment research and economic outlook.  In addition to this commentary from Cetera we'd like to provide a brief market overview of what we've seen since the start of the year.  The S&P 500 is up roughly 3.9% since January 1st; however, the large cap growth stocks that led much of the 2020 recovery and advance have since taken a breather to start 2021. You probably saw breaking news headlines a few weeks back about the 'tech stock sell-off' in regards to the spike in Treasury yields.  This rotation out of tech and into more value oriented names has been somewhat panic stricken as many investors sold their tech winners and rushed into names traditionally growing much slower. We believe that at times when we see panic there is opportunity and take these moments to ante up on our due diligence for holding many of our investments.  While this rotation may continue or play itself out for a few more weeks we believe that, as we look towards the future economy, growth will continue to be driven by technology advancement. 

From a technical market perspective this rotation has provided a great buying opportunity for certain pockets of the S&P 500. Since the beginning of the year we have noted 4 RSI divergences as the S&P continue to push towards new all-time highs. (Read Here to understand more about RSI divergences.) These divergences motivated us to remain cautious in the midst of the market propelling higher, maintaining slightly elevated cash levels relative to our norm.  We feel like the window between March 4-6th provided a great entry to deploy some capital as we saw the pinnacle of this panic rotation (mentioned above).  While we remain cash heavy, we are confident that as the market digests unemployment, inflation, and vaccine rollout news we will be provided with numerous entry points throughout the remainder of 2021.  Overall it seems that this market may favor active managers relative to passive ones similarly to 2020. 

We hope you enjoy the commentary from Cetera, the charts they provide, and our own note.  As always, we'd love the opportunity to discuss these things in person with you and would appreciate any sort of share or referral that you might feel lead to share this with.