News

April kicked off the second quarter with several notable and new trends taking shape. Market momentum of latter half 2014 and Q1 2015 reversed course in many areas including oil, domestic equities, currencies, and bond yields. Overall market action in April could be categorized as a reflation trend as commodities, bond yields, inflation break-evens, and equities seem to be pricing in higher growth. As is often the case, commodity markets and the U.S. dollar were mirror images of each other. Commodities posted strong gains led by a 20% increase in WTI crude oil, which stands 30% over its mid-March lows. The strong U.S. dollar seems to have stabilized versus the Euro, weakening from an April high of $1.06/€ to end at $1.12/€. Continuing the reflationary theme, break-even inflation levels have risen from 1.54% to 1.95% and global sovereign yield curves have steeped materially. The 10yr German Bund has climbed 11x, from 0.033% to 0.37% over the past few weeks leading U.S. yields in the same direction, now back up over 2%.

Consumer, housing, and manufacturing indicators in April continued their downward trend while inflation and unemployment have remained relatively constructive. Overall, the U.S. economy has underwhelmed, most recently validated by an anemic Q1 GDP growth rate of 0.2%. Despite the low growth, Fed watchers now predict initial rate hikes as early as September of this year, whereas our internal forecast remains early 2016. April equity market internals have echoed the reflation trend with the S&P 500 hitting a new all-time high and the NASDAQ finally breaking through the tech bubble high water mark set 15 years ago. April markets saw larger companies outperform smaller ones and value outperform growth, both trend reversals from the first quarter. Of note were robust commodity markets, Chinese monetary stimulus, and reform economic policies in Brazil driving emerging markets to their biggest monthly gain in over three years.