High style volatility: constant ups and downs between value and growth

Current market commentary

Markets remain nervous and equity style volatility stays high. There are no clear trends. This is also because the Fed and the markets are unlikely to know better, until late summer, how temporary the recent sharp rise in inflation will really be. Gold and European equities were among the recent outperformers. They benefited from significant inflows. Gold also surpassed its 200-day moving average and was supported by falling real interest rates, a weak US dollar and high volatility in cryptocurrencies. European equities benefited from positive earnings revisions as well as improved investor sentiment due to the vaccine progress and the resulting opening of the economy. For international investors, the current GBP and euro strength and USD weakness may also have played a role. Asia has recently fallen behind. China's economy is weakening somewhat and Japan is administering vaccines much more slowly. Asia could therefore have catch-up potential in H2.

Short-term outlook

The Q1 reporting season is drawing to a close. 85% of S&P500 companies surprised on the upside, beating earnings expectations by a median of 16%. However, stock prices have hardly reacted to these positive surprises, as the equity market had already priced in most of the strong recovery in corporate earnings. Over the next few weeks, the market will again focus more on economic and inflation data. After the surprisingly strong rise in the CPI figures, the highlights will include the Fed's preferred inflation measure, the price index for Personal Consumption Expenditures (PCE deflator), which will be published on Friday for the month of April. The following week on Friday, US labour market data for the month of May will be published. The focus is likely to be on the change in non-farm payrolls and the development of US wages.