Robust earnings helped mitigate fear of persistent inflation
Market sentiment turned bearish in early April for both equity and fixed income markets as sticky U.S. inflation data fuelled market fears that central banks will not ease monetary policy as quickly as previously hoped. Both stock and bond markets pulled back in the first half April, only dampened by the sharp rebound in the second half when strong earnings results and robust growth expectations buoyed markets. Both equities and fixed income markets ended the month in negative territory with global bonds falling 1.68% over the month while developed market equities fell 2.25%.
A combination of rising energy prices and lower interest rate sensitivity supported the cyclical value segment of the equity market, which outperformed the growth segment on a relative basis.
After making record highs in March, the rally in Japanese and U.S. equities tapered off as they led the way lower for global equity markets in April. At the same time, higher commodity exposure and increased investor interest in cheaper Chinese equities helped emerging market equities deliver positive returns of 0.5% over the month.
The NEI perspective
Uptick in the most recent inflation data, higher energy prices, and geopolitical tensions stoke concerns that inflation may re-surface, leaving little room for rate cuts despite economic slowdown.
Activities of Magnificent 7 helped lift the S&P 500 Index back above 5000 following a brief dip in April.
One of the key drivers in the continued strength of the U.S. economy has been the labour market, which has been remarkably robust and the weakening of which would also be an early indicator of economic weakness as it has been in numerous recessions in the past.