Equities languished a bit this week due to continuing inflationary fears and weakness in some of the technology stocks that led the way in 2020. While the market in aggregate may be struggling, stocks in sectors tied to a reopening of the economy continue to fare well.

Commodities, including industrial metals and oil, have been on the rise and have boosted the performance of economically sensitive sectors such as energy, industrials, and materials. Travel-related stocks have also begun showing signs of life. While business travel may be recovering slowly, there are some indications that leisure travel is making more of a comeback as many people have grown restless after the extended lockdowns.

On the inflationary front, while still very much on investors’ minds, Federal Reserve Chairman Jerome Powell did ease concerns modestly in testimony given to Congress this week. While any upcoming fiscal stimulus that may be in the offing could be inflationary, Powell still feels that current state of inflation is soft and that the outlook for the economy is still quite uncertain. This eased investor concerns as it made clear the Fed would not raise rates any time soon.

The markets’ movements in recent weeks are an excellent example of the importance of diversification. Looking at simply “market performance,” as measured by an index such as the S&P 500, returns have been rather muted. However, looking at the broader market shows that asset classes such as small-cap value and large-cap value have outpaced the market performance. Why? Because these asset classes often have exposure to many of the cyclical sectors that have performed well since COVID-19 vaccines were first announced late last year. While it can be jarring when it happens, a rotation out of the stocks and sectors that had performed well the prior decade and into those that had languished is quite common when a new economic cycle is emerging—and highlights the importance of remaining diversified through good times and bad.

Stay safe and be well.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.