The distribution of vaccines has accelerated in some countries along with the corresponding reopening of the economy, while other countries, notably India and Brazil, continue to struggle with containing the virus. In April, yields on US Treasuries retreated as the Federal Reserve remained clear in its conviction to keep policy supportive despite inflationary concerns. US equities rallied to fresh highs on the back of better than expected earnings reports, improving economic data, and reopening optimism. The rotation out of growth / tech stocks into value / recovery stocks slowed as major tech companies reported stellar earnings. Developed and emerging market equities both benefitted from the US dollar weakening but they appreciated less than US equities for the month. Among emerging economies, China’s early recovery and tech heavy focus, as well as rising COVID-19 cases in some areas, weighed on relative returns, while on-going logistical issues with the vaccine roll-out in developed economies contributed to lower returns there.
Overall, we softened our bullish view on equities to neutral as valuations in the US continue to soar, with downside risk increasing. We note though that policy support, vaccine deployment, economic data, and momentum remain supportive in the US. Concerns over issues facing the Chinese equity market weighing down emerging markets, as well as struggles with containing COVID-19 in other countries, dampened our view of emerging markets equities. We view developed market equities favorably, given the progress made in containing the virus and the cyclical sector focus. No segments of fixed income are attractive. We maintain our negative view on high yield as credit spreads have remained extremely tight, and on cash given low rates and inflation concerns. We updated our view on commodities from neutral to positive in anticipation of supply/demand issues persisting.