A strong April, but weaker seasonality ahead
- Global equities saw another healthy consolidation week. This closed a strong April, rising 3% led by the US (+4%), and the tech sector (+7%). Commodities also surged (+8%). The monthly laggards included US bonds (+0.6%), the USD (-2%), and Bitcoin (-4%).
- Equity seasonality is more difficult ahead, as we enter the lower volume summer months. The long term average S&P 500 November-April monthly return is 1.6%, more than double May-October 0.6%.
- We see lower but positive returns ahead, helped by a still under-estimated GDP and earnings recovery.
Tech titans shine as global earnings soar
- US big-tech stocks dominated the busiest week for Q1 earnings reports. The so-called FAANGM’s saw average earnings rise 120% vs last year, dramatic growth for stocks representing 25% the S&P 500.
- The good news was also broader, with US earnings growth running at 45% vs last year, and at 70% in Europe. Both are well-above initial expectations, and provide support to already high valuation levels.
Global growth gap set to narrow
- We are seeing a wide global GDP growth gap, with China stabilizing after its early recovery, the US having the current momentum, and Europe set to pick up.
- The US reported 6.4% annualized GDP growth (or +1.6% yoy), rising sharply from the prior quarter, and near regaining pre-crisis activity levels in record time.
- By contrast, Europe saw a -1.8% yoy ‘double-dip’ recession in Q1, but is beginning to recover and set for a sharp pick up as the vaccine rollout continues.
- Meanwhile China’ leading purchasing manager index (PMI) indicators show positive but more stable growth momentum, reflecting its earlier rebound.
Crypto-asset performance is broadening
- The market cap of bitcoin (BTC) fell below 50% of total crypto assets, from a recent peak above 70%, reflecting the growing acceptance of altcoins
- Ethereum rose to a new all time high price, and quadrupling YTD, helped by improving liquidity — with ETH now representing 15% of total crypto market cap. — and by increased decentralized finance (DeFi) uses — with the European Investment Bank launching a ’digital bond’ sale using the Ethereum network.
- JP Morgan is planning to offer a bitcoin fund to its clients, in a further sign of broadening adoption, and a major turn-around in view from the US’ largest bank.
Copper prices leading commodity rally
- Copper prices hit the highest levels in a decade, and are +27% YTD, driven by accelerating global growth, a weaker USD, and rising ‘green demand’ outlook.
- Supply concerns have also risen with a market deficit now forecast for this year, and leftist candidate Castillo leading polls in no. 2 producer Peru’ June election, and proposing to nationalize the sector.
The week ahead: Politics and policy in the UK
- Likely strong numbers from US manufacturing ISM (Monday) and non-farm payrolls (Friday) reports.
- UK see’s potential BoE bond purchase ‘tapering’ and a Scottish elections independence focus (Thursday).
- Last major week of US Q1 earnings, with 139 (28%) S&P 500 companies reporting, including Activision Blizzard, CVS, GM, NCL, Pfizer, and Uber.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.