APRIL 2021

Improving Outlook

• Global stocks advanced 2.7% in March following 2.4% the prior month bringing the YTD gain to 4.7%.
• Despite a 34 bp increase in the US 10-year Treasury to 1.74%, the S&P 500 rose 4.4% and is 6.2% YTD.
• The YTD 82 bp gain in the US 10-year Treasury is the highest three-month move in four years and led to the steepest yield curve in more than five years as the 2-year Treasury was only 3 bp higher.
• Front-end rates continue to be pinned down by easy policy as the Fed indicated it expects rates to remain on hold during the next couple years and that the uptick in inflation would be temporary.
• As the Fed has brushed off inflationary concerns, the disconnect between the market’s view has grown.
• Signs of higher inflation pressure continue to increase and both consumer and market estimates are at multi-year peaks.
• So far, elevated savings combined with the additional stimulus, increased pace of economic reopenings, the vaccine rollout, strong earnings, and easy financial conditions have supported markets with the pickup in rate volatility.
• Overall, the risk to yields remains higher as the US 10-year yield is still the lowest amongst major developed economies relative to the level on January 1, 2020.
• We expect bond market volatility to continue driving relative equity performance and markets to remain sensitive to any shift forward in the Fed’s tightening outlook and to higher real rates.
• With expectations of a cyclical recovery in the 2H, we remain our bias to value and cyclical stocks and beneficiaries of the reopening in the consumer, travel, and business services sectors.