Q1 2021 Market Update


In Q1 2021 the Wilshire 5000 Total Return index gained 6.11%, the All-Country World Index gained 4.88%, and the Barclays Aggregate Bond Index declined -3.36%. Since 2016 the Wilshire 5000 Total Return Index has gained 98.38%, the All Country World Index gained 88.90% and the Aggregate Bond Index has gained 19.27%. *Data provided by Folio Institutional (1)

The past 5 years have offered tremendous returns in the stock market while also maintaining inflation-like returns in the general bond market. The American economy was strong and companies that composed the economy delivered tremendous results in aggregate. Client accounts have performed inline or above market targets relative to risk. Aggressive accounts have generally delivered 80-100%+ returns in a consistent and diversified manner. More moderate accounts have delivered 60-80% returns while still providing a balance of income and safety that many retirees rely heavily upon. Even our more conservative accounts have delivered 40-60% returns while offering a large cushion from daily volatility. Of course, as the markets continued to move upward it has been natural for many to ponder; can this continue? Over the past years, we have received many questions about the ability of markets to continue marching upwards. Our answers have kept many people invested and aimed to keep emotions on the sidelines. With all the work we do, I believe our greatest value is simply helping families stay the course and harvest the long-term rewards that the markets reserve for the patient investors.

Major Market Events from 2016 – 2021

· The collapse of Oil Prices (2 times)


· Greece Debt Crisis shakes Euro

· Russia invades Ukraine

· Multiple international strifes (nuclear concerns with North Korea)

· China trade disputes

· Election fears (2 times)

· Multiple FED policy changes

· 15%+ correction in 2016

· 20%+ correction in 2018

· Covid 19 and a 30%+ correction in 2020

This is simply a list from the top of my head. It is helpful to look at what we just lived through so that we might gain perspective and maybe some wisdom we can apply in the future. Despite all this turmoil, change and variables; the market managed to grow near 100%. In fact, the bigger the turmoil the bigger the follow-up growth. After each correction…15%, 20%, 30% we saw a tremendous rebound.

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” – Warren Buffet

Following this advice and ignoring all emotion has turned out pretty good the last 5 years! Sometimes it takes longer but we know if we wait long enough the odds are stacked in our favor.

Inflation and Rate Thoughts

The yield on the ten-year Treasury bond has moved from 0.78% in October to near 1.60% today. Timber prices have tripled; materials, commodities, and gasoline have all increased significantly; appliances are on backorder from supply chain disruptions; Homes are tight supply….and so, inflation is on the rise. The rumbling of inflation and rate increase started in November amidst the promise of vaccines and a return to some bit of normal. The unique combination of an economic re-opening alongside continued stimulus has created a perfect storm for inflation to rear its ugly face.

Should we be concerned about inflation?

“The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her saving in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is ‘taxed’ in a manner that leave her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn’t seem to notice that 5 percent inflation is the economic equivalent.” – Warren Buffet

As the quote above so eloquently portraits; yes, we should always be keeping a close eye on inflation. We must remain vigilant in our portfolio construction to counter the damage inflation can inflict. I have mentioned inflation many times over the past years. It is an area we spend hours researching and understanding. The reason for such diligence is primary to investing. Good investing serves 2 purposes. 1) Take a stake in future profits or interest of companies or bonds. 2) Keep our capital from losing spending power so we can maintain a similar lifestyle many years into the future.

Based upon the evidence we have today, it still seems unlikely we return to a 1980’s style inflation. While we (and the Federal Reserve) expect higher inflation in the short term, we remain optimistic about some counterbalance from the Federal Reserve, and natural market forces to keep inflation within a reasonable range. One of the biggest inflation factors is regulations. Forcing regulations before the technology can properly execute will cause some price pressures. For example; requiring or pressuring low carbon aluminum to be used as the standard when most aluminum is produced in higher carbon plants means price increases must happen to compensate for the added cost to produce. If we see regulation like this increase to quickly then it is possible to slip into a longer trend of inflation that may feel a bit uncomfortable. While this does not mean 1970/80 style inflation, it does mean we must remain vigilant in understanding how these forces impact various investment decisions. We remain focused on this possibility and maintain this thought process in long-term portfolio construction.

Market Valuation Concern Thoughts

For the past few years, we have shared the following quote:

The market looks high, and it is high; but it’s not as high as it looks. – Benjamin Graham

We have argued that a confluence of forces has converged to both validate current levels and push prices to new levels that appeared very fundamental in nature. Combination of low rates, high cash balances, high corporate cash balances, monopolistic business models, less tradeable companies, increased world capital, government stimulus, easing credit, demographic wealth transfers, among others. So while the oft-sited PE ratio (price paid per dollar of profit) has increased from an average of around 17 to near 25 (projected for 2021), the market has offered a real foundation for elevation. Since 1995 the amount of public US stock market companies has drifted from 7,487 to near 4,381. Meanwhile, the amount of dollars available to invest in 401(k) plans, pension funds, endowments, retirement accounts has grown substantially. We have much more money chasing fewer and fewer companies. We have also seen the largest companies maintain an extreme competitive advantage and generate huge cash and outsized profits for a long period of time. Companies such as Apple, Google, Microsoft, Facebook, Amazon have been growing revenues and profits well over 20% a year for a longer than normal time. The combination of extraordinary (some may argue unfairly) profits has been made possible by unique advantages in technology born from the internet revolution. In short, the high-quality earnings power of many companies alongside favorable macroeconomics continues to be very strong and underpins today’s valuations. While the market is not cheap by any standards, we continue to be optimistic for the long term.

Concluding Thought & Quote

The past quarter and years have been fruitful. We remain steadfast to identify and invest in a durable manner that can absorb short-term disruptions and still thrive long term. We think the below quotes by famous investor Charlie Munger perhaps sum up much of our recent thinking:

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

“What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience — both vicarious and direct — on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and fail in life. You’ve got to hang experience on a latticework of models in your head.”

With this thought, we march forward to combine our research and experience to keep meeting your goals. It is a tremendous honor to help steward your assets and retirement journey during this time. Thank you for your trust!


(1) Data reported by Folio Institutional. (2) Data reported by Y-Charts Data, www.ycharts.com.

Index results such as the Wilshire 5000 and S&P 500 do not reflect management fees and expenses and you cannot typically invest in an index. Evergreen Wealth Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.