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April 2021 Market Commentary: ‘Transitory’ Hope by Leading from Behind

Data Source: Bloomberg

 To read full commentary, click here.

April 2021 Highlights:

  • April saw a continued advance in ‘risk-on’ market performance led by U.S. stocks, commodities, and high yield fixed income.
  • Global stocks (MSCI All-Country World Index) returned 4.4% led by the U.S. region (S&P 500), which returned 5.3%, followed by MSCI Europe (+4.5%), as these two regions are leading global COVID vaccination efforts.
  • Broader Asia (MSCI Japan and Asia ex Japan) and Emerging Markets continue to lag the global market, returning 2.8% and 2.5%, respectively, while MSCI Japan dropped 1.5%. Outside of North America and Europe, COVID infection rates have surged, especially in India, Japan, and throughout South America.
  • Within the U.S., April saw a reversal from the 1st quarter as U.S. large caps and growth stocks outperformed U.S. small caps and Value stocks, respectively, although this relative performance gapped narrowed towards the end of the month. The S&P 500 returned 5.3% ahead of the 2.0% return of the S&P 600 while S&P Pure Growth outperformed Pure Value, returning 5.2% and 4.0%, respectively.
  • S. large cap growth stocks, especially tech behemoths represented by FAAMG, rallied follow strong 1Q earnings releases that show few signs of slowing global demand for digital technology and services. Growth stocks also benefited from a moderate drop in interest rates.
  • Across U.S. sectors, Real Estate was the top performer followed by Commercial Services and Consumer Discretion (both of which are dominated by large cap growth companies) while Industrials, Consumer Staples, and Energy lagged despite the rally in oil prices.
  • 1Q2021 reporting season is revealing an interesting divergence trend among stay-at-home favorites as digital services/media continue to thrive while defensive-oriented consumer products (e.g. staples) are now warning of margin pressures due to increased costs and less marginal demand.
  • Among risk factors, ‘Momentum’ outperformed all other factors having led throughout most of the month. Value and High Dividend underperformed as investor sentiment shifted back to large cap growth momentum following strong earnings releases from technology companies.
  • Investment grade fixed income rebounded from the 1st quarter sell-off as long-term interest rates dropped from end of quarter peak levels even with momentum building for the Biden Administration’s proposed $4 trillion infrastructure spending package. The Bloomberg/Barclays US Aggregate Bond Index rose 0.8% benefiting from both a drop in interest rates and continued spread compression across riskier fixed income assets as well as strong bid-to-cover response to this month’s Treasury auctions.
  • Treasury rates dropped as the 10-Year U.S. Treasury Yield ended the month at 1.63% versus 1.75% at the beginning. The 2- vs 10-year term structure flattened while inflation expectations priced into TIPS dropped from their recent peaks but remain at elevated levels.
  • U.S. high yield continued to enjoy moderate gains as high yield spreads have reached post-pandemic lows, especially the riskiest segments of the high yield market (i.e. CCC-rated).  The Bloomberg Barclays US High Yield Index returned 1.1%.  Foreign currency and emerging market debt recovered from the prior quarter’s underperformance, as foreign bond markets benefited from U.S. dollar weakness.
  • Within equity alternatives, commodities posted a strong month as industrial metals (notably copper) reached new highs driven by both supply shortages and structural demand from technology/alternative energy manufacturers. Oil prices also reached a post-pandemic high (3-month contract reaching $63/barrel), even with lingering COVID infection rates delaying worldwide business and leisure travel.

 To read full commentary, click here.

By: Benjamin Lavine