An Astonishing April

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Monthly Market Snapshot: April 2020

Highlights

Stocks across most markets experienced astonishing gains in April with the S&P 500 posting its best monthly return since 1987. It was the best April performance since 1938. Outside of the U.S., emerging markets rose 9.0% while shares in Europe and Japan rose 4.9% and 5.4%, respectively. The 10-year U.S. Treasury yield was little changed during the month – falling just 4 basis points to 0.64% at month-end.

Incoming economic data have been horrible. However, massive amounts of stimulus, news on potential COVID-19 treatments, and evolving plans to reopen the economy have lifted stock prices sharply. While the rebound in stock prices appears “V-shaped,” the underlying economy may take longer to recover. Particularly on the services-side of the economy.

On April 22nd, Citi’s Global Investment Committee (GIC) moved from a neutral weighting on U.S. small-cap and mid-cap shares to an overweight. Small-caps have lagged, but the GIC is expecting these shares to “play catch-up” if the economy starts to reopen. On the fixed income side, the GIC increased its holdings of both Eurozone and U.S. investment-grade corporate debt.

Shawn Snyder Head of Investment Strategy,
Citi Personal Wealth Management

Regional Outlook

United States

Economy (Slowing)

The U.S. economy contracted by an annualized rate of 4.8% in the first quarter of 2020. The second quarter is likely to be much worse due to the coronavirus-led lockdown. Citi’s economists are expecting an annualized drop of about 30% in the second quarter and a 23% annualized rebound in third quarter. With many states likely to be partially reopen by the end of June, we should see a boost in economic activity. The manufacturing-side of the economy may recover faster than the services-side.

Stocks (Neutral; Overweight SMID)

Citi Private Bank’s Global Investment Committee maintains a neutral position on U.S. stocks. However, the Committee lifted its weighting on U.S. small- and mid-cap shares (SMID) from neutral to overweight. After lagging behind, we think that they may play “catch-up” to large-cap shares once the U.S. economy reopens. Large-cap shares have come a long ways in a short period of time. We are optimistic on the outlook for 2021, but a neutral position seems warranted given that the rally may have overshot a bit.

Bonds (Overweight)

The Federal Reserve has brought out much of its arsenal to support the economy. This also added some stability to the bond market. While maintaining an overweight to U.S. Treasuries, the GIC moved to a neutral stance on long-duration Treasuries. The Committee also decided to increase its exposure to U.S. short- and intermediate-duration investment grade debt. The GIC remains neutral on municipal bonds.

Europe and Japan

Economy (Europe: Slowing / Japan: Slowing)

Citi’s economists cut their 2020 Euro Area growth forecast by 7% to -8.3% as a result of the coronavirus. Lifting restrictions should foster a meaningful rebound in the second half of the year, but it may take two years to return to pre-COVID GDP levels. In Japan, 2020 growth has been revised down by 3.2% to -4.7% as the country declared a state of emergency. Second quarter growth will likely be deeply negative.

Stocks (Europe: Underweight / Japan: Neutral)

The GIC has moved from a neutral position to an underweight position on European (ex-UK) stocks. Monetary and more importantly, fiscal stimulus is getting unlocked across the region, including in Germany, but the key risk remains the health of the banking system and the Eurozone’s ability to boost activity. Japanese large cap stocks have rebounded on seemingly lower levels of virus spread and less extreme shutdown measures. However, the case count is surging again so we remain neutral.

Bonds (Underweight)

The GIC is maintaining a deep underweight on both European and Japanese sovereign bonds.

Emerging Markets

Economy (Slowing)

The economic outlook for emerging markets looks better than many advanced economies, but growth is still forecast to decline by 0.5% year-on-year. Emerging Asia has seen downgrades across all economies with 2020 growth now expected to be 1.4% year-on-year. China may grow by just 2.4% this year. Latin American economies may face steep declines with Mexico’s GDP expected to decline by 9% in 2020.

Stocks (Overweight)

The GIC has moved from a neutral to an overweight on emerging markets (specifically Asia and Latin America). As China continues to climb out of the economic declines seen in February, equities in Asia are likely to remain somewhat more resilient, while the world continues to battle the virus. Latin America valuations have improved sharply after a deep selloff. Given the severe underperformance relative to other markets, we would expect the region to perform well when the global rebound comes.

Bonds (Overweight)

We are overweight emerging market fixed income as U.S. dollar-denominated debt valuations reflect poor fundamentals, but also long-term opportunities and attractive risk adjusted returns.

U.S. Stock Market and Economic Forecasts

Figure 1: U.S. Stock Market and Economic Forecasts

Indicator	2018A	2019A	2020F
S&P 500 Target	2,507	3,050	2,700
S&P 500 P/E Ratio	15.43x	18.97x	23.30x
S&P 500 EPS Growth	22.5%	2.0%	-24.0%
GDP	2.9%	2.3%	-2.6%
Inflation	2.0%	1.4%	0.9%
Unemployment Rate	3.9%	3.7%	6.6%

This table shows Citi's U.S. stock market and economic forecasts. Indicators include year-end targets for the S&P 500, Price-to-Earnings ratios, Earnings-Per-Share growth rates, gross domestic product, inflation, and the unemployment rate.

Sources: Citi Research and Citi Personal Wealth Management as of April 30, 2020. Note 1: The S&P 500 P/E ratio is based on trailing four-quarter S&P 500 operating earnings-per-share. Note 2: “A” means actual; “F” means forecast. There can be no assurance that these projections will be met. Actual results may differ materially from the forecasts/estimates. The above table reflects the views of Citi Investment Research and Analysis (CIRA). CIRA forecasts take into consideration underlying economic, demographic, political, and psychological forces that drive market behavior. CIRA looks for trends and markets that offer potential as long-term investment ideas. You should carefully consider investment objectives, risks, charges, and expenses before investing.

Global Economic Forecasts

Figure 2: Global Economic Forecasts

Region	GDP Growth			CPI Inflation			10-Year Yields			Exchange Rate vs. USD
	2019F	2020F	2021F	2019F	2020F	2021F	2019F	2020F	2021F	2019F	2020F	2021F
Global	2.7	-3.1	5.5	2.5	2.1	2.5	N/A	N/A	N/A	N/A	N/A	N/A
Based on PPP Weights	3.0	-2.2	5.3	3.2	2.9	3.2	N/A	N/A	N/A	N/A	N/A	N/A
Industrial Countries	1.7	-5.1	5.1	1.3	0.6	1.7	N/A	N/A	N/A	N/A	N/A	N/A
United States	2.3	-2.6	3.8	1.4	0.9	2.2	1.75	1.25	1.25	N/A	N/A	N/A
Japan	0.7	-4.7	2.6	0.5	0.0	0.2	-0.10	0.00	0.11	109	105	98
Euro Area	1.2	-8.6	8.4	1.2	0.3	1.6	-0.25	-0.40	-0.19	1.12	1.15	1.17
Emerging Markets	3.8	-0.5	6.1	4.0	4.0	3.5	N/A	N/A	N/A	N/A	N/A	N/A
China	6.1	2.4	8.2	2.9	3.6	1.9	2.99	2.24	2.58	6.91	6.98	6.71

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This table shows Citi's forecasts for gross domestic product, consumer prices, 10-year sovereign bond yields, and exchange rates versus the U.S. dollar across various regions.

Market Indicators

Figure 3: Equity Markets

Equities	Level	2015	2016	2017	2018	2019	MTD	QTD	YTD	P/E	12-Month Forward P/E	Current
		Equity Returns (%)								Valuations		Div. Yld. (%)
Global	489	-4.3	5.6	21.6	-11.2	-2.9	10.6	10.6	-13.5	17.7	18.7	2.7
S&P 500	2912	-0.7	9.5	19.4	-6.2	3.1	12.7	12.7	-9.9	19.2	22.0	2.1
DJIA	24346	-2.2	13.4	25.1	-5.6	-6.0	11.1	11.1	-14.7	17.2	21.0	2.8
NASDAQ	8890	5.7	7.5	28.2	-3.9	16.0	15.4	15.4	-0.9	34.1	30.2	1.1
Europe	2395	3.9	0.7	21.2	-18.5	-10.9	4.9	4.9	-23.7	16.3	15.9	4.2
Japan	2983	9.1	0.4	21.8	-14.5	-3.6	5.4	5.4	-13.2	14.0	13.6	2.7
Emerging Markets	925	-17.0	8.6	34.4	-16.6	-12.1	9.0	9.0	-17.0	13.5	13.7	3.0

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This table shows returns for various equity markets, including returns from the previous 5 years and current year period-to-date returns. It also shows current valuations for these markets.

Note: Global = MSCI All Country World Index (USD); Europe = Euro Stoxx 50 Price Index (USD); Japan = MSCI Japan (USD); Emerging Markets = MSCI Emerging Markets (USD). Most equity index returns shown here are based on a U.S. dollar basis. International returns for a U.S.-based investor can differ significantly depending on the effects of foreign currency exchange.

Figure 4: Fixed Income Markets

Fixed Income	YTM	2015	2016	2017	2018	2019	MTD	QTD	YTD	Instrument	Current (%)
		Fixed Income Returns (%)								Other Key Rates
Global	0.9	0.9	3.3	2.1	0.5	7.1	1.5	1.5	3.2	10-Yr. U.S. Treasury	0.64
U.S.	1.34	0.5	2.7	3.6	0.0	8.9	1.7	1.7	5.0	30-Yr. U.S. Treasury	1.28
Europe	0.39	1.1	3.3	0.5	0.5	6.0	1.3	1.3	0.1	1-Yr. CD Rate	0.62
EM Sovereign	6.85	0.6	9.6	9.8	-4.1	14.8	2.1	2.1	-11.2	30-Yr. Fixed Mortgage	3.52
U.S. High Yield	8.82	-5.6	17.8	7.0	-2.1	14.1	3.6	3.6	-10.0	Prime Rate	3.25

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This table shows returns for various fixed income markets. It also includes other key rates like the 10-year U.S. Treasury, 30-year U.S. Treasury, 1-year CD rate, and 30-year fixed mortgage rate.

Note: Global = Citi World BIG Index (LCL); U.S. = Citi U.S. Broad Investment Grade Bond Index (USD); Europe = Citi Euro Broad Investment Grade Index (EUR); EM Sovereign = Citi Emerging Markets Government Bond Index (USD); and U.S. High Yield = Citi High-Yield Market Index (USD).

Asset Class Returns (Sorted by Performance)

Figure 5: ... — Figure 5: Global Asset Class Returns (Year-to-Date)

Figure 6: ... — Figure 6: S&P 500 Sector Total Returns (Year-to-Date)

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Highlights

Regional Outlook

U.S. Stock Market and Economic Forecasts

Global Economic Forecasts

Market Indicators

Asset Class Returns (Sorted by Performance)

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