April global commentary: US earnings and economic activity surprise on the upside

05 May 2021


by Peter Little, Fund Management

Global equity market momentum gathered pace in April, with the MSCI World Index (+4.7% MoM) delivering its best month since November as US corporate earnings and economic activity surprised on the upside. 60% of S&P 500 companies had reported 1Q21 earnings by the end of April, with aggregate earnings up 50% relative to 1Q20 – almost double consensus expectations.

On the economic data front, the US ISM Services Index showed that in March, US service providers experienced their fastest growth on records dating back to 1997. Despite the pace of the economic recovery, US President Joe Biden pushed ahead with plans to implement aggressive fiscal stimulus, following his $2.3trn infrastructure plan (American Jobs Plan), with details of a $1.8trn family support plan (American Families Plan) – the former funded by corporate tax hikes, the latter by higher taxes on the wealthiest Americans.

The FAANG stocks (Facebook, Apple, Amazon, Netflix, and Alphabet [Google’s parent company]) were amongst the biggest winners in 2020, up more than five times the aggregate of their S&P 500 peers. However, this large-cap tech grouping has lagged peers since November when COVID-19 vaccination plans were first announced, but 1Q21 earnings for most of these companies was a timely reminder of their astounding ability to grow, with positive earnings surprises helping drive their share prices at double the pace of their peers in April.

Listed real estate investment trust (REIT) stocks were also amongst the best-performing shares in April, particularly storage and retail counters. Storage REITs benefited from improving financial metrics and early signs of merger and acquisition activity, while data from mobile devices showed that foot traffic at a sample of US malls was 86% above March 2020 levels. Emerging market (EM) stocks lagged for a third consecutive month (MSCI EM +2.5% MoM), despite a currency tailwind as Chinese markets remained weak, and India’s deadly COVID-19 wave weighed on the local stock market.

US long-term rates, which have been climbing steadily since last August, finally took a breather in April with US 10-year government bond yields dropping c. 0.1% to 1.6%. US central bankers (Fed) meeting in late-April agreed to maintain the status quo on abundant monetary stimulus. In a post-meeting press conference, Fed Chair Jerome Powell was at pains to point out that higher inflation was likely to be transitory, that the labour market still had a long path towards recovery, and that the Fed was not yet discussing tapering quantitative easing. The cautious Fed narrative and lower US rates weighed on the US dollar, which ended the month weaker against most currencies.



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