Propelled by five consecutive all-time closing highs to end the quarter, the S&P 500 enjoyed its second-best first half since the dot com bubble. The first quarter of the year had been highlighted by soaring value stocks, meme stock mania and a reflation trade as the global economy showed signs of synchronized growth. Stock leadership in the second quarter looked vastly different, however: Growth stocks reasserted themselves as the economic narrative shifted from seemingly limitless expansion potential to “peak everything.” Thanks to the strong outperformance earlier in the year, value stocks still held an edge for year-to-date performance—but the gap narrowed from nearly 10.5 percentage points to just two. Mega-cap stocks were the driving force behind the record close at quarter end as the S&P 500 Equal Weighted Index was unable to reclaim its all-time high reached in the beginning of June. Similar to the value/growth dynamic, Mid and Smallcap stocks still held a performance edge for the year to date but saw their largecap peers outperform for the quarter. Looking abroad, foreign stocks largely lagged the US returns as questions surrounding the reflation trade dented Emerging Markets and Covid variants led to fresh lockdowns in some European countries.
Equities continued their winning streak in the first quarter of 2021 despite political unrest, weather severe enough to disrupt economic output and a global pandemic that continued to rage. Helping to underpin the positive momentum for stocks was an earnings season better than anticipated given these challenges. The rapidly increasing vaccination efforts in the US allowed for a continued reopening of the economy at the same time a massive stimulus bill was passed that pushed out hundreds of billions of dollars in just a few short weeks. A dramatic reaction to all of this in the fixed income market – doubling the yield of the 10-year Treasury – caused stocks to wobble but ultimately was not enough to halt the move higher. Value stocks again trounced growth, though the final weeks of March did see growth stocks catch a bid higher. Small and midcap stocks also performed much better than their largecap peers in the quarter. A strengthening dollar and a new wave of Covid infections abroad made for tough relative performance for international stocks as the quarter came to a close.