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March marked the one-year anniversary of the COVID-19-induced bear market low. The past year could not be more unlike anything any of us have ever experienced. And while no two recessions ever repeat, this one doesn’t even appear to rhyme with anything we’ve seen in history. The nature of the exogenous economic shock, the depth and speed of the economic collapse, and the extraordinary monetary and fiscal response make the 2020 recession truly unique.

Yet, many aspects of the market response one year out appear fairly “textbook.” Equities have rallied significantly off the bottom, with the S&P 500 gaining 78% (including dividends) in the 1-year since March 23, 2020. Small-cap equities have outpaced large cap, delivering 120% total return, according to the Russell 2000 and S&P 500 indices, respectively. Cyclical sectors—that are sensitive to the peaks and troughs of the economy, like energy, materials, industrials, consumer discretionary, and financials—have been the best performers in the S&P 500 index. Commodities, high-yield bonds, and inflation-linked bonds have all delivered strong returns.

As we look ahead to the next year, we remain constructive on equities and have rotated the portfolios to further embrace cyclical and value-oriented equities. We hold overweight positions to equities (including U.S. large cap, U.S. small cap, international developed, and emerging markets), high-yield fixed income, and commodities versus our long-term strategic asset allocation. We fund that with underweight positions to cash, fixed income, and hedge funds.

Please see important disclosures at the end of the article.

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