Check Your Expectations



Markets rose this week as economic data gave analysts a positive surprise. Initial unemployment claims set a pandemic era record low while manufacturing data continued to impress and housing starts soared. Retail sales also soared, making up for disappointing sales figures in March, which represented an unusual February month suppressed by a cold weather spell. Overall, the economy remains well-positioned to perform exceptionally in 2021 based on the most recent economic data. New COVID-19 infections moved slightly higher again this week, with 7 day moving averages increasing by around 2K a day over the prior week. The past four weeks have some analysts seeing cause for concern as rates have been increasing, but rates are increasing at a decreasing rate, hopefully indicating that the trend of increasing spread is a temporary circumstance.

Overseas, developed markets slightly outperformed emerging markets. European indices were positive, with Japanese markets returning a slightly negative performance for the week. Improving prospects against the pandemic as well as improved prospects for economic recovery should continue to help lift markets globally over time.

Markets were positive this week as investors continue to assess the state of the global economy. While fears concerning global stability and health appear to be in decline, the recent volatility serves as a great reminder of why it is so important to remain committed to a long-term plan and maintain a well-diversified portfolio. When stocks were struggling to gain traction last month, other asset classes such as gold, REITs, and US Treasury bonds proved to be more stable. Flashy news headlines can make it tempting to make knee-jerk decisions, but sticking to a strategy and maintaining a portfolio consistent with your goals and risk tolerance can lead to smoother returns and a better probability for long-term success.

Chart of the Week

New home construction surged in March, making up for the lull that took place in February due to bad winter storms in the South. The recovery puts the home building industry back on an upward trajectory to help fill skyrocketing demand for housing.

Market Update


Broad market equity indices finished the week up, with major large-cap indices outperforming small-cap. Economic data has been encouraging, but the global recovery has a long way to go to recover from COVID-19 lockdowns.

S&P sectors returned almost exclusively positive results this week. Utilities and materials outperformed, returning 3.66% and 3.24% respectively. Energy and communications underperformed, posting 0.23% and -0.01% respectively. Energy maintains its lead in 2021 with a 27.63% return.


Oil rose this week as crude oil inventories fell more than expected. Energy markets have been highly volatile in the COVID era, but it appears that stability may be more of the norm given recent market fundamentals. Demand is still low compared to early 2020, but as vaccinations proliferate, lockdown restrictions in Europe, as well as the U.S., should start to loosen, helping support recovery. On the supply side, operating oil rigs are still well under early 2020 numbers, but trending upwards. In addition to supply and demand, a volatile dollar is likely to have a large impact on commodity prices.

Gold rose this week as the U.S. dollar weakened. Gold is a common “safe haven” asset, typically rising during times of market stress. Focus for gold has shifted again to include not just global macroeconomics surrounding COVID-19 damage and recovery efforts, but also inflation and its possible impact on U.S. dollar value.


Yields on 10-year Treasuries fell this week from 1.6585 to 1.5798 while traditional bond indices rose. Treasury yield movements reflect general risk outlook and tend to track overall investor sentiment. Recently, expected increases in future inflation risk have helped elevate yields. Treasury yields will continue to be a focus as analysts watch for signs of changing market conditions.

High-yield bonds rose slightly this week as spreads loosened. High-yield bonds are likely to remain more stable in the short to intermediate-term as the Fed has adopted a remarkably accommodative monetary stance, vaccines continue to be administered at high rates, and major economic risk factors subside, likely helping stabilize volatility.

Lesson to be Learned

“Don’t look for the needle in the haystack. Just buy the haystack.”

-John Bogle

FormulaFolios Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on a scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read at least 66.67% bullish. When those two things occur, our research shows market performance is typically stronger, with less volatility.

The Recession Probability Index (RPI) has a current reading of 23.42, forecasting a lower potential for an economic contraction (warning of recession risk). The Bull/Bear indicator is currently 100% bullish, meaning the indicator shows there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

It can be easy to become distracted from our long-term goals and chase returns when markets are volatile and uncertain. It is because of the allure of these distractions that having a plan and remaining disciplined is mission-critical for long-term success. Focusing on the long run can help minimize the negative impact emotions can have on your portfolio and increase your chances for success over time.

The Week Ahead

This week will be light on economic releases but will include updated PMI numbers, which will help reveal the state of the manufacturing sector as well as inflation progress. The housing market will also see updated new home sales figures.

More to come soon. Stay tuned.

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