During the first quarter of 2021, the S&P500 total return index was up +6.2% in US dollars. Adjusting for currency, the S&P500 returned +4.9% in Canadian dollars, as the Canadian dollar appreciated about 1.0 cent, closing the quarter at US$0.795. The TSX total return in the first quarter was +8.1% Like the fourth quarter of 2020, the market was influenced by the prospect for a vaccine induced reopening of the economy and better than expected earnings. Supporting this were the recent March economic projections from the Federal Reserve (Fed) members, which show further strength in real GDP growth for 2021 and 2022, with the 2021 rate revised up 2.3% to 6.5% from 4.2% in December representing the strongest growth in GDP since 1983! Also, the unemployment rate was revised down for each year through 2023 once again approaching the pre-COVID low of 3.5% in February 2020, which already represented a 50 year low!

Meanwhile, Core Personal Consumption expenditure (PCE), the Fed’s preferred measure of inflation, is barely expected to rise above 2%, which gives the Fed plenty of cover to keep rates low. And notwithstanding these sharply ramped up forecasts for growth, somewhat higher inflation and lower unemployment, the Fed is still projecting no interest hikes in the forecast period through 2023. Some transitory inflation through the second quarter of 2021 is built into the Fed forecast as we lap lower prices last year due to COVID-19; however, it is not enough to cause a change in their 2021-2023 view.