• Global equity markets were flat in April, masking some intra-month volatility due to ongoing trade war rhetoric and pockets of earnings disappointments. Europe led all major markets while emerging markets lagged, perhaps feeling the effects of higher U.S. interest rates.
  • Looking across the U.S. factor landscape, ‘momentum’s’ weakness in March spilled over into April due to ongoing weakness in the U.S. tech sector. However, following strong 1Q18 earnings from key large cap growth companies, ‘momentum’ recovered and outperformed all the other major U.S. factors.
  • The fixed income market underperformed as the 10-Year Treasury Yield briefly broke through 3% before settling at 2.95%, up from 2.74% at the beginning of April. Investment credit spreads continue to widen, but high yield spreads remain narrow, partly reflecting the late cycle dynamics that investors are positioning for.
  • This late cycle positioning can be seen through the strong performance of the commodity indices led by oil as spot prices reached $67-68/barrel from $64-65. U.S. late cyclical sectors such as energy also performed well in April.
  • The view now being priced into the markets is a diverging growth picture between the U.S. and the rest of the world that is now being expressed through the strong recovery in the U.S. dollar (DXY up 2% in April).
  • With market expectations for Federal Reserve rate hikes catching up with Fed official communications (a reversal from the pre-Brexit period), we could be witnessing a different form of late cycle positioning, with the U.S., rather than overseas markets, being the prime beneficiary of late cycle growth.
  • What has emerged from April’s market activity is the continued move towards risk re-normalization. Many risk assets are being repriced to more normal levels from their abnormally high levels at the end of January.
  • More attractive valuations from their peak levels doesn’t necessarily inoculate global markets from further corrections, but investors are now seeing a market more attractively priced even if we are in the late stages of the current business cycle.

Read the full April 2018 Market Commentary Here