Anna Rathbun, Chief Investment Officer

It seems that during the last year, we have consistently underestimated our ability to combat the pandemic. First, we expected the development of a viable vaccine to take much longer. Then, we questioned the operations behind getting the vaccines to the public. The general consensus at the beginning of 2021 was that the production and distribution of the vaccines would be challenging and would take time to administer to reach herd immunity. Fast forward to mid-February, and the picture began to get brighter here at home as vaccination numbers accelerated and new infection numbers improved dramatically. While the picture is not as rosy in different parts of the world, we have seen firsthand the effectiveness of the vaccine as a way out of this pandemic. This has meant readjustment of economic growth prospects for 2021, short-term inflation expectations, and asset prices. While we would prefer to be right on most things, we are glad to revise our economic expectations and outlook with optimism.


  • We expect a general downward trend of new COVID-19 infections as vaccinations continue, and this optimism came through in the first quarter performance of the global equity markets.
  • The prospect of a full economic reopening was closer than we had anticipated, and both economists and investors began to revise their outlook. At the center of these revisions was the U.S. Treasury yield curve, often seen as the market expression of future growth and inflation prospects. As our outlook changed for the positive, the yield curve began to steepen rapidly.
  • International equity markets also continued to climb with domestic markets despite the fact that COVID-19 infections have not been under control and vaccination efforts have not been fruitful.
  • One of the most talked-about topics of the quarter was inflation. As the yield curve steepened steadily, news headlines were flooded with the word “inflation,” as if it were a foregone conclusion on our long-term economic fate.
  • There is general agreement that there will be a temporary burst of growth as we reopen and price increases that reflect the distortions in the economy. In all, the current thought is that at least for the short-term, we expect to see prices rise as the economy heats up.
  • This flip side of inflation is growth. Consensus forecast falls right on the Federal Reserve’s estimate of 6.5% real GDP growth for 2021. Much of this will be the reversal of the contraction in 2020; on a year over year basis, the base effect will built into that impressive growth estimate.
  • Along with economic growth, we are also anticipating stellar corporate earnings growth. On a year-over-year basis, the companies in the S&P 500 Index are expected to report a 25% earnings growth for the first quarter, and this number has been revised up meaningfully since the beginning of the year.
  • Market sentiment is one of optimism, and the early cycle momentum could carry equity markets further ahead. Conversely, the issue for the markets may be that price movement does not always follow the direction or amplitude of earnings growth.

Looking Ahead

As of mid-April, the U.S. has administered more than 200 million vaccines to its population, and the speed seems to be ramping up. There is a lot of excitement about reopening here in the United States as more of the population is vaccinated, and the expectation is to see growth numbers we have not seen in many decades. But as pointed out earlier, there is still much uncertainty that lies ahead simply because we have not shut and open our economy before. Among the unknowns is the psychological impact of the pandemic and how much fear regarding the virus will linger for how long. We are optimistic that Americans will be able to reclaim our lives and to live freely as we did before COVID-19 became a household name. For the next quarter, we hope to be surprised again on the upside and would be glad to continue revising our expectations upward.

More Information

For more information on the Q1 2021 financial market activity, please contact CBIZ Investment Advisory Services.

The information included in this update is provided for informational purposes only and should not be construed as investment advice. The views expressed are those of the author based on the data available when this update was written and are subject to change based on market conditions or other factors. CBIZ Investment Advisory Services and/or CBIZ Retirement Plan Services disclaims any liability for any direct or incidental loss incurred by applying information supplied in this update.

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Published on April 21, 2021