Optimism in the global markets kick started April, pushing S&P 500 to record highs despite a sector rotation underway. Since the US Presidential election in Nov 2020, The Financial and Energy sectors have taken over as the drivers of the rally and in the past month, they have been ably supported by Materials and Industrial names as well. The Q1 2021 earnings season could not have been scripted better, with the tech titans having record quarters on the back of ad revenues picking up again. Banks are showing elevated profits too as they revise their bad loan provisions lower.
Our IC met in the first week of May, and the key takeaways were a higher allocation to commodities and caution around rising inflation expectations eroding Fixed Income gains (in the form of higher yields and lower bond prices). The most recent US Inflation data shows the highest rise since 2008, which has put further pressure on the tech sector negating positive earning news at the beginning of the month.
The key risk to our outlook continues to be a resurgence of the virus, as we have seen in India. In addition to the untold human cost of the pandemic, the economic recovery is set back months if not years. On the bright side, we are getting closer to herd immunity with most developed nations aiming to be fully vaccinated by the end of this year or early next year, which will keep markets broadly supported.
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May 17, 2021
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