Stableford Capital Insights
Stableford Market Commentary: April 2021
Stableford Capital - April 2021 Review: Equities Led by Resurgence in Large Cap Growth
The S&P 500 was up 5.2% in April, led by a resurgence in large-cap growth stocks and financials on the strength of earnings. Industrials and energy lagged during April as funds flowed into large-cap growth again. It is worth noting that this trend has begun to reverse in early May with cyclical outperforming growth.
Equities Led by Resurgence in Large Cap Growth
[caption id="attachment_3555" align="alignnone" width="936"]
Market Commentary April 2021 - Equities Led by Resurgence in Large Cap Growth[/caption]
Approaching Peak Growth
The consensus among economists is that US GDP growth will peak in 2Q 2021. Although growth will remain above trend, the tailwinds from fiscal stimulus and reopening should peak in the second quarter.
Peaking Economic Growth
[caption id="attachment_3556" align="aligncenter" width="668"]
Source: Bloomberg, Goldman Sachs
Investment Research Market Commentary April 2021 - Peaking Economic Growth[/caption]
Why does this matter? Typically, equities continue to rise when economic growth slows—as long as growth remains positive (note that ISM, Institute for Supply Management, readings above 50 indicate economic growth). However, equity returns are typically not as good when growth decelerates as Exhibit 3 indicates.
Slower equity appreciation with decelerating economic growth
[caption id="attachment_3557" align="aligncenter" width="668"]
Source: Goldman Sachs Investment Research
Market Commentary April 2021 - Exhibit 3[/caption]
In addition, during the transition period to slower growth, equities often struggle. In the rare cases when the ISM is above 60, equity performance is weak on a 3-month and 6-month basis. The latest ISM reading for April was 61, down from 65 in March as seen in Exhibit 4.
Equity returns are weakest when economic growth begins to decelerate
[caption id="attachment_3558" align="aligncenter" width="668"]
Source: Goldman Sachs Investment Research
Market Commentary April 2021 - Exhibit 4[/caption]
Rates Fall in April
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Market Commentary April 2021 - Exhibit 5[/caption]
The 10 Yr. U.S. Treasury yield pulled back 11 basis points in April, falling to 1.63% from 1.74% (Exhibit 5). Rates moved up very quickly in March and most of the pullback seems to be a reset from the “too much, too fast” move of the prior month. We would expect long-term rates to continue their climb during 2021 based on inflation and economic growth expectations.
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