Coming off an unprecedented year in financial markets, domestic equities continued to move higher in the first quarter of 2021, with the S&P 500 Index rising 6.2% to finish at an all-time high. An improving labor market, a healthy rise in consumer spending, and a growing deployment of vaccines provided investors with greater clarity into the country’s ongoing economic revival and guided domestic equities’ quarterly performance. However, while the prior year’s performance was mainly defined by a relative outperformance in technology and growth-related names, the energy, financial, and industrial sectors were the primary contributors during the quarter. The rotation into these sectors was reflective of a larger pattern of value-oriented sectors outperforming their growth-based counterparts, bucking the long-standing trend of growth’s dominance.  Additionally, the improving economic backdrop continued to support small-cap stocks, which are more sensitive to economic conditions but tend to fare better during recoveries. As such, small-caps led the way during the quarter, followed by mid-caps and then large-caps.

Despite a year defined by a global pandemic and political uncertainties, financial markets proved resilient, with the major indices finishing the quarter, and the year, at or around all-time highs. The S&P 500 Index moved 12.14% higher in the fourth quarter, resulting in an overall gain of 18.39% for the index in 2020. The nationwide rollout of two COVID-19 vaccines, coupled with greater clarity regarding the country’s political backdrop, calmed market angst and set domestic equities up for a rally into the latter part of the quarter. Contributing most to the broader market’s rise were cyclically oriented sectors, led by energy and financials. On a market-cap basis, small-caps fared substantially better than large-caps in the fourth quarter and outperformed on the year. Finally, the long-standing trend of growth stocks outperforming their value counterparts reversed this quarter, with value exhibiting its best quarter since 2009.

Coming off one the strongest quarters on record, the third quarter of 2020 saw the domestic equity market move higher once again.  While the market did pull back a bit in September after five consecutive months of gains amid concerns about stretched equity valuations and trepidation over the upcoming presidential election, the S&P 500 Index still returned a very healthy 8.93% through quarter’s end.  The consumer discretionary and basic materials sectors were the quarter’s top contributors, and large-cap names generally outpaced their mid- and small-cap peers.  The growing bifurcation between growth and value continued to play out in the quarter, with growth stocks faring substantially better than their value counterparts across all market caps.

Following a less-than-rosy start to the year, the second quarter of 2020 was marked by a strong rebound across financial markets. While the ongoing coronavirus pandemic, or COVID-19, was still present, certain parts of the country experienced a steady decline in positive case counts and began the early stages of their re-opening phases. This, along with society adjusting to the new normal under quarantine more generally, has led to the start of a reversal in the unemployment rate and a rise in U.S. retail sales. Domestic equities responded positively to this news, with the S&P 500 Index gaining 20.54% during the quarter – the best quarterly return on record since 1998.

The first quarter of 2020 was a difficult time for financial markets and the world more broadly.  In addition to the medical toll, the sweeping pandemic known as the novel coronavirus, or COVID-19, and the shutdown it created shuttered small businesses, disrupted global supply chains, stunted demand for goods, and caused unemployment to spike.  For the stock market, the result was a decline of 19.6% as measured by the S&P 500 Index. While the market did rally and rebound sharply in the quarter’s final two weeks, the first three months of 2020 still ended as the worst on record since 1987.  Meanwhile, the CBOE Volatility Index, a common measure of market volatility informally known as the VIX, tripled before calming during the late-quarter rally. While no area of the stock market was immune from this broader selloff, healthcare, technology, and the most defensive sectors like utilities and consumer staples held up relatively better.  On the other hand, the energy sector was by far the worst hit, as a March falling out between major oil producers Saudi Arabia and Russia sent oil prices plunging as low as $20 per barrel. Frustrated by Russia’s unwillingness to agree to production cuts, the Saudis vowed to price the Russians out of the market, leading oil markets to post their largest one-day decline since the Gulf War.