Overview: Stock markets finished the month of April last week on a positive note, as strong corporate earnings and solid economic data drove returns. Optimism over continued economic recovery, along with continued vaccination progress translated to the largest monthly gain since last November for the S&P 500 Index, up 5.3% for the month of April. International developed stocks (MSCI EAFE) rose 3.1% for the month, while emerging markets (MSCI EM) were up 2.5% in April. In bonds, strong economic data and the prospect of additional fiscal stimulus helped drive interest rates higher last week, with the 10-year Treasury yield climbing 7 basis points (bps) to 1.63%. Despite higher yields last week, the 10-year Treasury yield declined over the month, from 1.75% to 1.63%, helping drive positive returns in bond markets. For the month, both the Barclays Aggregate (taxable) and Barclays Municipal Indices had a total return of 0.8%. On the economic front, strong economic data was lead by U.S. first-quarter gross domestic product (GDP), which grew by 6.4%. In addition, initial jobless claims declined to 553,000 for the week, the lowest level since the beginning of the pandemic. The strong readings point to an economy driven by fiscal and monetary stimulus, accelerated vaccine distribution, pent-up savings, and re-openings of local economies.

Economic Commentary (from JP Morgan): The U.S. economy, as measured by real GDP, accelerated in 1Q21, recording an annualized increase of 6.4%. Almost a year removed from the 2Q20 contraction of -31.4%, it is clear that the economy is in the midst of a swift, consumer-driven recovery; this latest reading is the third consecutive quarter of above-trend growth, following strong GDP prints in 3Q20 (+33.4%) and 4Q20 (+4.3%). Under the hood, 1Q21 personal consumption expenditures rose at a SAAR of 10.7% with the goods and services components up 23.6% and 4.6%, respectively. Strength in the services sector was driven by increasing vaccinations and gradual return to normalcy, as evidenced by solid q/q growth in air transportation (+11.5%), accommodations (+9.5%) and food services (+5.8%). The quick rebound in the U.S. economy and equity market has directed increased attention to the Fed. For now, the Fed remains accommodative, electing at the most recent FOMC meeting to once again not adjust the target federal funds rate and reaffirming its commitment to asset purchases until “substantial further progress is made.” However, Chair Powell did highlight the vaccination campaign and fiscal stimulus as the primary drivers of the recovery and even noted improvements in the sectors hardest hit by the pandemic. As a result, with the backdrop of a robust recovery, investors should be positioned for higher yields as strong growth and higher inflation are realized in the quarters to come.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s

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