Global markets were flat last week, with a glut of economic and corporate data showcasing the incredible progress the global economy has made in a relatively short amount of time. The fundamental backdrop continues to check all the boxes for a durable bull market, and investors have taken notice. With conditions rapidly improving, expectations and the bar to exceed them keep rising, and the pendulum of emotions is swinging towards optimism.
United States
The major indices, often seen as global indicators ended mostly lower, but the S&P 500, the Nasdaq Composite, and the S&P MidCap indexes all reached new highs before surrendering their gains on Friday. Returns within and among sectors varied widely as investors reacted to a flood of first-quarter earnings reports, although a rise in oil prices to six-week highs provided a general boost to energy stocks.
Communication services shares outperformed within the S&P 500, helped by earnings and revenue beats from Facebook and Alphabet (Google). Technology stocks underperformed, weighed down by a decline in Microsoft despite the company reporting earnings that exceeded consensus estimates. Health care shares were also weak, dragged lower by declines in several major drug-makers.
Markets did not appear to react strongly to the outcome of the Federal Reserve’s policy meeting on Tuesday and Wednesday, although the firm’s traders noted that stocks reversed earlier gains after Fed Chair Jerome Powell referred to “froth” in equity markets in his post-meeting press conference. Nevertheless, Powell reiterated that the Fed would wait for “some time” before raising rates, while also saying that policymakers were not ready to begin planning for a reduction in asset purchases.
| Index | Friday’s Close | Week’s Change | % Change YTD |
| DJIA | 33,874.85 | -168.64 | 10.68% |
| S&P 500 | 4,181.17 | 1.00 | 11.32% |
| Nasdaq Composite | 13,962.68 | -54.13 | 8.34% |
| S&P MidCap 400 | 2,725.15 | -20.56 | 18.14% |
| Russell 2000 | 2,266.45 | -5.41 | 14.59% |
Europe
European shares ended little changed, just like their global market counterparts after an increase in eurozone bond yields prompted investors to take profits at near record levels. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.38% lower. The major indexes posted mixed results: Germany’s Xetra DAX Index eased 0.94% and Italy’s FTSE MIB slipped 1.00%, while France’s CAC 40 advanced 0.18% and the UK’s FTSE 100 Index gained 0.45%.
Core eurozone bond yields trended higher compared to other global markets amid concerns that the U.S. Federal Reserve might consider tapering its bond purchasing program. Higher-than-expected German inflation data published also pushed up core yields. Yields in the UK and peripheral eurozone bond markets also climbed higher, largely tracking the movements in U.S. Treasuries and core eurozone bonds.
The eurozone economy may have entered a recession, preliminary seasonally adjusted data from Eurostat showed. This early reading, which is subject to revision, estimated that first-quarter GDP decreased by 0.6% after contracting by 0.7% over the preceding three months. Germany’s economy contracting by 1.7% was the main driver of this weakness and reflected the imposition of additional lockdown restrictions across the country and globally as well. Despite the slowdown, eurozone inflation accelerated to 1.6% in April 2021—up from 1.3% in March—mainly due to higher energy costs. In Germany, the inflation rate quickened to 2.1%.
Asia
Chinese shares recorded a weekly loss, going against their global market counterparts, as the government’s continued crackdown on technology firms’ dampened buying sentiment. The large-cap CSI 300 Index declined 0.2%, while the Shanghai Composite Index shed 0.8%. Additionally, reports that a state-owned asset manager was selling positions in growth stocks and that several state banks were delaying the release of their 2020 financial results gave investors little incentive to buy ahead of a three-day Labor Day holiday.
In the global bond markets, the yield on China’s sovereign 10-year bond edged up 2 basis points to 3.20%. Moody’s Investors Service lowered its A3 rating by a notch on China Huarong Asset Management, the troubled state-backed financial institution whose bonds sold off earlier this month after it delayed reporting its 2020 results. Market reaction to the Moody’s downgrade was muted, however. Earlier in the week, Bloomberg reported that Huarong had repaid its offshore SGD 600 million bond with a loan from China state-owned lender ICBC.
Japan’s stock markets finished the week lower, with the Nikkei 225 Index down 0.72% and the broader TOPIX Index falling 0.87%. Declines were notable on Friday, as some firms’ worse-than-expected earnings releases exerted downward pressure on markets. Investors also adjusted positions ahead of the resumption of the Golden Week holiday, which sees markets close May 3–5. The yen weakened against the U.S. dollar, closing at JPY 108.9, while the yield on the 10-year Japanese government bond rose to 0.09%.
Other Key Global Markets
- Turkey – Turkish stocks, as measured by the BIST-100 Index, returned about 3.9% as per their global market counterparts. Several cryptocurrency exchanges in Turkey stopped operating or experienced financial difficulties in the wake of the central bank’s announcement at mid-month that using digital currencies as a form of payment will be forbidden, effective April 30. With the collapse of a few cryptocurrency exchanges that has caused considerable household losses—with early estimates of as much as USD 2 billion that could go higher if other exchanges fold—the lira has strengthened recently as local investors scramble to close out their positions.
- Peru – Peruvian assets were under pressure, in part because of polls showing that the socialist candidate Pedro Castillo has a solid, if not widening, lead over the conservative politician and former presidential candidate Keiko Fujimori in the next round of presidential elections. Another factor that may be weighing on Peruvian assets is that Congress recently approved a law allowing the withdrawal of 100% of Service Time Compensation funds. These funds exist to provide workers with unemployment benefits at the time of separation and are funded by employers.
Data Sources:Thomson Reuters, Barrons (Dow Jones & Company), Bloomberg, The Economist Europe, Brazil Business Post, Edward Jones Financial Markets Report.
