Highlights

• US Equity Hot-Streak Cools Down
• China Comeback?
• Safe in Digital or Physical Gold?

US Markets

After a dynamic start to the first quarter of 2024, April saw pullbacks in major US indices —the S&P 500, Nasdaq, and Dow Jones— following a five-month hot streak¹. S&P 500 Index volatility also surged to 21.36 points, reaching levels not seen since October 2023. 

Q1 earnings season is in full swing with 80% of the S&P 500 companies reporting during April. Five out of seven Magnificent companies have reported; most notably, Tesla's earnings fell short of street expectations, yet it surged by as much as 16.10% the following day. Prior to Tesla's earnings release, the company was on the brink of a 20% decline. 

Alphabet managed to finish the month positively after its earnings report, while Meta plummeted by as much as 16% the following day. Apple is set to report earnings on May 2nd, followed by Nvidia on May 22nd.

In April, all sectors except Utilities declined. The Energy sector has emerged as the front-runner year-to-date. This marks a notable departure from April 2023, when Technology and Communications sectors were significantly outperforming. International conflicts can have profound effects on the global economy, leading to fluctuations in various sectors as investors reassess risks and opportunities. The Real Estate sector  lagged significantly in April losing 6.82% bringing  year-to-date performance  to -9.05%, lagging the S&P by over 14%.

In April, factors across the board struggled with all six experiencing declines. Momentum, which had led dramatically at the end of Q1, faced the steepest decline. Momentum, Quality, and Growth factors maintained their outperformance, consistent with ongoing trends. When we examine factor returns for April, it suggests that investors have adopted a risk-off stance. During such periods, low volatility, high quality, and value-oriented investments tend to outperform, while momentum and growth stocks may underperform. Despite the pullback, all six factors remain positive year-to-date. 

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US Economy

In March, the Consumer Price Index (CPI) report revealed a 5.3% surge in service prices compared to the previous year, indicating inflationary pressures. Meanwhile, headline inflation increased by 3.5% year over year, reflecting broader economic trends. Core Personal Consumption Expenditures (PCE) index, favored by the Federal Reserve for its exclusion of volatile food and energy prices rose 3.8% year over year.

In the United States, the once exceptionally tight labor market is displaying signs of further relaxation. Job openings have declined to 8.49 million, marking their lowest level since February 2021, while the quits rate has dropped to 2.1%, its lowest since August 2020. Despite these shifts, the U.S. labor market continues to exhibit resilience. Notably, workers on private nonfarm payrolls saw their average hourly wage climb to $34.69 in March, marking a substantial 4.1% year-over-year increase. This surpasses the expected annual growth rate of 3%–3.5%, indicating robust momentum in wage expansion.

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Global Markets

In April, Chinese markets led the way in returns,however, over the past three and a half years, Chinese equities have trailed their global and emerging market counterparts. Chinese markets have faced myriad headwinds incling  the pandemic, real estate challenges, debt pressures, geopolitical tensions, export disruptions, and capital outflows. If macroeconomic stability persists and corporate liquidity grows, thereby bolstering corporate expansion, this could prompt potential valuation reevaluation and subsequent rotation.

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Fixed Income Markets

In April, U.S. Treasury yields underwent a bear steepening, with long-term rates rising more than short-term rates. Longer-term rates are under pressure, while an unexpectedly resilient economy and persistent inflationary pressures are delaying the Federal Reserve from cutting rates. The 10-year yields closed the month .49% higher at 4.69%, while the 30-year yields ended .45% higher at 4.79%. Meanwhile, investment-grade corporates witnessed their first net outflow since October 2023, signaling a shift in investor sentiment².

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Alternative Assets

Bitcoin underwent a halving on April 19th, slashing the reward for network contributors (miners) by 50%. This directly affects the rate of new Bitcoin issuance. Bitcoin experienced nearly a 15% decline in the month of April before recovering, while Bitcoin volatility has fallen to new all-time lows on a yearly time frame according to Fidelity³. Gold tremendously outperformed Bitcoin in April, rising by 5.81%. The surge in gold's performance is attributed to increased investment demand for the safe haven asset, driven by central banks augmenting their gold reserves and concerns arising from elevated global inflation. Additionally, this trend is potentially fueled by the rapid expansion of US government debt.

Sources: 

1.https://markets.businessinsider.com/news/etf/s-p-500-nasdaq-100-snap-5-month-winning-streak-in-april-as-inflation-reality-check-hits-bullish-sentiment-1033308893

2.https://www.nuveen.com/en-us/insights/investment-outlook/fixed-income-weekly-commentary

3.https://www.coindesk.com/markets/2024/05/02/bitcoins-volatility-is-falling-and-this-will-continue-as-it-matures-fidelity/#:~:text=Bitcoin%20is%20currently%20less%20volatile,historical%20volatility%20figures%2C%20Fidelity%20said.

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