Equity markets trended upward in April, which was in line with our expectations in view of the seasonal conditions already mentioned in last month's commentary. The focus was on corporate earnings reports and the monetary policy decisions of the ECB and the Fed. On the monetary policy side, there were no significant changes in the ultra-expansive stance of the central banks. Despite high market-based inflation expectations, the U.S. Federal Reserve's communication has not yet switched to a "tapering" of bond purchases (USD 120 billion of bonds are thus still being bought every month). As before, it is pointed out that a temporary overshooting of inflation is assumed (base effect). The quarterly profits published so far have exceeded the high expectations and have thus returned to the pre-crisis level in the USA. In many places, the survey values for industry and the service sector are quoted at values close to or even above 60. Meanwhile, the Corona situation in many countries remains tense. Despite the difficult situation and the fact that the number of infections is still high in some cases, various governments have managed to bring themselves to a partial relaxation of the measures. In the country of the vaccination world champions, Israel, normality has even largely returned; in particular, the mask requirement has been lifted in the open and privileges apply to vaccinated persons. In India, on the other hand, the pandemic is out of control and the country is struggling to cope with record death rates.
The good quarterly results and the unchanged expansionary monetary policy gave free rein to the usual strong April on the financial markets. However, a very heterogeneous picture emerged within the regions. The Dow Jones gained 2.7%, but in CHF terms a loss of -0.5% resulted. The defensive Swiss stock market (SMI) took a breather after a very good previous month and ended April virtually unchanged. Also lethargic were the Asian stock markets (Nikkei225 -1.25%) or the Italian market (-2%). The s strong earnings reports of the major technology giants were cheered by analysts but celebrated with only little joy on the stock markets. Amazon.com's and Apple's quarterly figures far exceeded expectations. However, the share price reaction in both cases was not what one would expect. This shows that the valuations of these companies are already pricing in the perfect quarterly figures, and some may wonder whether the companies can continue to increase the strong growth figures and whether the valuations are justified.
US interest rates fell slightly from the levels reached at the end of March. In Europe, by contrast, interest rates in important countries climbed above the highs reached in March. Accordingly, the USD tended to weaken. It is exciting to note that despite very strong economic data, interest rates in the USA in particular did not reach any new highs - no matter how high the US government's investment and infrastructure programs were.
With the weaker USD, commodity prices increased on a broad basis. The copper price scratched the 10,000 mark for the first time. The price of wheat shot up by 26%. The gains in precious metals, on the other hand, seem equally small - gold gained 3.6% and silver climbed 6%. The oil price advanced 7%. The USD lost 3% against the CHF.
"Sell in May and go away" could be logical as the current environment presents itself. Valuations of many stock markets are not only absolutely but also relatively above long-term averages and at the same time investor sentiment is close to euphoric levels, as already mentioned in many commentaries this year (see FOCUS). Signs of speculation (Bitcoin, Gamestop, Archegos and others) are also causing frowns. Consensus positioning has been consistently on the cyclical recovery - however, according to relative valuations, cyclical assets no longer seem very interesting compared to defensive assets. In view of these circumstances, we are positioning the strategy portfolios much more defensively than at the start of the year.