April 2021 Market Commentary

April delivered more gains to equity investors worldwide. Recovery in the US is being reinforced by progress in vaccination rates across Europe, Asia, and the Far East. Economies across the globe continue to show signs of resuming the growth so prevalent before the Covid‐19 pandemic hammered its fist on much of the world.

The month just ended brought reports of record quarterly US corporate earnings gains in numerous sectors. Concurrent guidance suggests that many filings over the remaining quarters of 2021 will be positive compared to 2020, if not equally impressive.

We detected a sea change in equity performance during April. A disparity between US and non‐US market results is starting to develop. One of the important aspects of equity behavior and components of portfolio design is the history of low correlation between domestic and international markets. Sessions in which European and Asian bourses fail to follow US markets have become more commonplace.

This performance divergence, or failure to move in “lockstep” with the larger US equity market, has revealed at least a short term relative strength in favor of International and Emerging Markets issues. The world’s economies are beginning to reopen, and prices outside the US are becoming more accurate reflections of local conditions. This is visible evidence of the benefits of global diversification. Performance of broad based domestic and international equity benchmarks are illustrated below.

Although statistically, non‐US markets continue to lag YTD and April’s performance, recent observation suggests that the frequency of sessions in which markets move in opposite or dissimilar magnitudes or direction (low correlation) began to increase during the second half of the month. We suspect that as more countries experience the stimulative effects of reopening, these divergences will persist.

In the US, the story continues to be a roaring economy, flourishing under the 2017 tax cuts and a four year reduction in regulations during the Trump Administration. Employment is increasing, steadily eroding the jobs deficit created by last year’s shutdowns. The most recent report on new unemployment insurance claims last week was below 500,000 for the first time since March 2020.¹

State governments are restoring economic and personal freedom as new Covid cases in most areas of the country, and indeed the world (apart from India), have slowed to a trickle relative to the days just before vaccines began distribution late last December.

The chart below shows actual and a 7‐day moving average of newly confirmed cases in the US as of May 5th.²

Readers of this space are aware we have closely followed post‐Brexit developments in the UK for signs that the promised positives from EU separation last year would in fact, be realized by Britons. A recent report on British Purchasing Manager (PMI) sentiments and manufacturing activity is another confirmation that economic life after Brexit has been even better than expected.

April PMI data for the UK reveals that manufacturing activity and orders reached a 27‐year high.³ This despite pervasive anti‐Covid measures that will not be fully eliminated before summer.⁴ British firms are experiencing the same supply chain bottlenecks plaguing many US manufacturers as demand outstrips the ability of firms to obtain raw materials required to ramp up production. The pace of recovery in the UK is far outstripping that on the Continent.⁵ There appears to have been no validity to Remainers’ dire predictions of domestic economic chaos in the post‐Brexit UK.

The intensity of global recovery is mirrored in the near meteoric rise of commodity prices to record levels so far this year. We expect supply/demand imbalances and concurrent spiking materials prices to revert to more stable or “normal” levels in the coming months, both at home and abroad, as manufacturers rebuild inventories to meet surging consumer demand.

In remarks delivered after the Open Market Committee’s April meeting, US Federal Reserve Chairman Powell reiterated the Fed’s intention to keep its monetary creation pedal to the floor policy in place. The Chairman reaffirmed commitment to retain short term interest rates near zero through 2023 and expressed no concern that recent upticks in inflation gauges are presaging long term problems.⁶

One of the oldest adages on Wall Street is, “Don’t fight the Fed.” We’re inclined to agree and have little expectation that its current stance, with the money spigots wide open, will be modified in the foreseeable future, regardless of reopening inflicted inflation. If inflation does become a problem, bond prices will provide ample early warning.

Broad outlines of Democrats’ legislative agenda were presented in President Biden’s address to the nation two weeks ago. Passage in the House is highly likely with little to no modification but the Senate looms as a potential spoiler for Democrats’ ambitions to fundamentally restructure the US economy and taxes.

Changes in the tax code are coming and could possibly supersede strong corporate earnings and the Fed’s existing “easy money” stance in investors’ focus. But until concrete details are settled, barring the unexpected, markets should see stable interest rates and good earnings news, at least through the fall.

April was a great month for investors, one of many over the past year. The likelihood of Congressional Democrats and the Biden Administration redirecting US economic incentives next year is real, but markets appear to be concentrating on a surging domestic economy and robust, positive earnings comparisons, bolstered by a seemingly inexorable re‐expansion of world economic growth. 

¹ “U.S. Unemployment Claims Fell to 498,000 Last Week,” www.wsj.com, May 6, 2021. ² “New COVID‐19 Cases Worldwide, www.coronavirus.jhu.edu, May 6, 2021. ³ “Manufacturing PMI at near‐record high in April but sector still beset by supply‐chain disruptions,” www.cips.org, May 4, 2021. ⁴ “COVID‐19: Lockdown roadmap dates ‐ what's opening when, and what's allowed with how many people?” www.news.sky.com, May 3, 2021. ⁵ Op. cit., www.cips.org. ⁶ “Fed Chair Jerome Powell Press Conference Transcript April 28: Market Update,” www.rev.com, April 28, 2021.

This commentary is provided for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Content has been obtained from third-party sources and is believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. The views expressed in this commentary are subject to change based on market and other conditions. The commentary may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.