Market updates from April
As we start to ease out of lockdown and tentatively think about more normal times, let’s begin by taking a look back over the first quarter of the year. The first few weeks of the quarter saw many countries tighten restrictions in response to a renewed increase in COVID-19 infections. Fortunately, those first few weeks also saw the Democrats secure a US Senate majority at an important Georgia run-off election, which ultimately enabled President Biden to deliver a fiscal stimulus that was above expectations.
With other governments and central banks similarly accommodative, and the vaccine roll out ongoing (and particularly strong in the US and UK), investors anticipating at least an easing of restrictions later in the year sought out the riskiest of risk assets. Despite persistent concerns regarding new variants, vaccine efficacy and side effects, this ensured the rotation from sovereign bonds (which had their worst quarter in over 25 years) and quality and growth stocks to lower rated corporate bonds and cyclical stocks continued. US leadership on fiscal stimulus and the vaccine roll out ensured the US dollar was well supported, which was a headwind for emerging market assets.
As we move into the second quarter equity markets have continued to move steadily upwards, although a breather in the recovery trade has seen some of the more growth and quality parts of the market re-take leadership once again. Whilst Bond returns have stabilised for the time being, following the violent moves earlier in the year. Some good economic data underlining a speedy return to growth and widespread re-employment in the US, has helped support sentiment.
Where vaccine roll outs have been strong, they've been phenomenally successful, and where they've not been strong, the pace is expected to pick up significantly in the coming weeks and months. Moreover, existing vaccines appear to provide a decent level of protection against the known variants and the known serious side effects appear to be extremely rare indeed. In addition, central banks not only remain highly accommodative, but also alert to tightening financing conditions, and are supported by governments that have ensured consumers and corporates are flush with cash. Therefore, despite numerous risks including the unintended consequences of all the stimulus and rich headline valuations, we expect the positive fundamental and technical backdrop for risk assets to persist for the time being, albeit not without bouts of volatility along the way.
The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation.