April Acceleration

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Monthly Market Snapshot: April 2021

Highlights

Technology stocks recovered as long-duration interest rates stabilized. In the United States, the NASDAQ surged 5.4% as the 10-year U.S. Treasury yield fell from 1.74% at the end of March to 1.63% at the end of April. The S&P 500 jumped 5.2% while the Dow Jones rose 2.7%. Japanese shares underperformed as the region implemented COVID restrictions once again. Emerging markets added 2.4% in the month. Fixed income returns improved, but remain largely negative year-to-date.

U.S. economic data have been coming in very strong with the economy growing by an annualized rate of 6.4% in the first quarter of 2021 and the labor market adding 916,000 jobs in March. However, total employment remains over 8 million jobs lower than it was in February 2020. This should leave monetary policy very accommodative for some time. Fiscal policy also remains supportive with an infrastructure plan likely to be passed. Though such a plan will likely include some tax increases for wealthy individuals and corporations.

Citi’s Global Investment Committee decided to reduce its global equity allocation from a +10% weighting to a +8% weighting. Fixed income was raised from -9% to -7%. Within equities, the GIC reduced its overweight in global small- and mid-cap shares and large-cap developed equities, including the U.S.

Shawn Snyder Head of Investment Strategy,
Citi Personal Wealth Management

Regional Outlook

United States

Economy (Recovering)

The U.S. grew by annualized rate of 6.4% in the first quarter of 2021 and is on track to expand in the second quarter as well. The level of real GDP remains slightly below where it was in the fourth quarter of 2020, but the nominal GDP level has fully recovered. The labor market has been recovering at a rapid clip as well, but employment remains about 8 million jobs below its level in February 2020. The Biden Administration has proposed two separate plans that will provide additional fiscal stimulus spread out over a period of 10 years. The cost of these plans will be offset by higher taxes over a period of 15 years.

Stocks (Neutral Large-Cap; Underweight SMID)

Citi’s Global Investment Committee maintains a neutral position on U.S. stocks, but lowered its allocation to large-cap stocks in a step towards de-risking. Small- and middle-cap (SMID) stocks are an underweight in the portfolio. While markets appear richly valued, this is largely a function of the powerful rally seen in pockets of growth and momentum-related shares. We prefer value and cyclically-oriented names over the next few quarters.

Bonds (Neutral)

The GIC is underweight short-term U.S. Treasuries, neutral intermediate- and long-dated Treasuries, and overweight U.S. Treasury-Inflation-Protected Securities (TIPS). Large scale fiscal packages have temporarily put a floor in long-dated yields, while short-term rates have diminished appeal given the expectation of higher inflation. We expect a range of 1.50%-2.00% in 2021 for the 10-year U.S. Treasury yield, but see it trending toward 2.50% in future expansion years. For taxable US investors, muni yields are attractive relative to other taxable high-quality bonds.

Europe and Japan

Economy (Europe: Contracting / Japan: Contracting)

Citi’s economists expect a negative real GDP print for the Euro Area in the first quarter. Vaccinations should allow for robust activity in the second quarter, but data may be weak in April as extended restrictions continue to weigh on activity. As a result, the 2021 GDP forecast has been revised lower by 0.6% to 3.4%. In Japan, Citi’s economists revised down their 2021 forecast by 0.3% to 1.6% to reflect a supply chain shock and prolonged COVID restrictions.

Stocks (Europe: Overweight; Neutral SMID / Japan: Neutral; Neutral SMID)

The GIC maintains an overweight on Europe, particularly UK equities, but has lowered its weighting to Japan large-caps. Non-U.S. small- and mid-cap stocks (SMID) are considered a neutral or slight underweight. In the UK, the end of a long period of Brexit uncertainty is raising confidence in an independent Great Britain and valuations remain cheap. An improved COVID response may be the first indicator of economic recovery.

Bonds (Underweight)

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

Emerging Markets

Economy (Recovering)

Citi expects emerging market economies to rebound from a -1.7% decline to 6.6% growth in 2021. The Asian region is expected to grow by 7.9% in 2021 while Latin America is expected to grow by 4.7%.

Stocks (Overweight Asia and Latin America; Neutral China and EMEA)

The GIC is overweight emerging markets (Asia ex China and Latin America), but China remains a neutral weighting. Regions like Latin America should recover as vaccines start to reach emerging markets. The longer-term outlook looks more cautious.

Bonds (Overweight Asia; Neutral EMEA and Latin America)

The GIC maintains an overweight on emerging market fixed income, specifically Asia. In local bonds, future returns may be driven by foreign exchange movements.

U.S. Stock Market and Economic Forecasts

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

Indicator	2019A	2020A	2021F
S&P 500 Target	3,231	3,300	3,800
S&P 500 P/E Ratio	18.97x	27.43x	24.34x
S&P 500 EPS Growth	2.0%	-13.3%	21.2%
GDP (YoY)	2.2%	-3.5%	6.2%
Inflation (YoY)	1.5%	1.2%	2.7%
Unemployment Rate	3.7%	8.1%	5.2%

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, 2021. 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
	2020A	2021F	2022F	2020A	2021F	2022F	2020A	2021F	2022F	2020A	2021F	2022F
Global	-3.6	5.5	4.1	2.0	2.8	2.4	N/A	N/A	N/A	N/A	N/A	N/A
Based on PPP Weights	-3.3	6.1	4.2	2.8	3.7	3.2	N/A	N/A	N/A	N/A	N/A	N/A
Industrial Countries	-4.9	4.7	3.7	0.7	2.0	1.6	N/A	N/A	N/A	N/A	N/A	N/A
United States	-3.5	6.2	3.3	1.2	2.7	2.1	0.91	2.00	2.00	N/A	N/A	N/A
Japan	-4.8	1.6	3.2	0.0	-0.1	0.4	0.03	0.10	0.15	107	111	112
Euro Area	-6.8	3.4	4.6	0.3	1.7	1.3	-0.52	-0.24	-0.03	1.14	1.17	1.16
Emerging Markets	-1.7	6.6	4.6	3.6	3.8	3.3	N/A	N/A	N/A	N/A	N/A	N/A
China	2.3	8.8	5.5	2.5	1.8	2.0	2.96	3.30	3.20	6.90	6.43	5.99

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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	2016	2017	2018	2019	2020	MTD	QTD	YTD	P/E	12-Month Forward P/E	Current
		Equity Returns (%)								Valuations		Div. Yld. (%)
Global	702	5.6	21.6	-11.2	41.8	14.3	4.2	4.2	8.6	29.7	19.7	1.7
S&P 500	4181	9.5	19.4	-6.2	49.8	16.3	5.2	5.2	11.3	30.4	22.8	1.4
DJIA	33875	13.4	25.1	-5.6	31.2	7.2	2.7	2.7	10.7	26.2	20.6	1.7
NASDAQ	13963	7.5	28.2	-3.9	94.2	43.6	5.4	5.4	8.3	93.4	32.2	0.7
Europe	3574	0.7	21.2	-18.5	26.7	3.4	3.9	3.9	10.1	44.7	18.3	2.0
Japan	3827	0.4	21.8	-14.5	31.3	12.2	-1.5	-1.5	-0.7	26.7	16.5	1.9
Emerging Markets	1348	8.6	34.3	-16.6	33.7	15.8	2.4	2.4	4.4	20.9	14.6	1.9

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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	2016	2017	2018	2019	2020	MTD	QTD	YTD	Instrument	Current (%)
		Fixed Income Returns (%)								Other Key Rates
Global	0.90	3.3	2.1	0.5	7.1	5.7	0.2	0.2	-2.6	10-Yr. U.S. Treasury	1.63
U.S.	1.49	2.7	3.6	0.0	8.9	7.7	0.9	0.9	-2.6	30-Yr. U.S. Treasury	2.30
Europe	0.11	3.3	0.5	0.5	6.0	4.1	-0.7	-0.7	-2.6	1-Yr. CD Rate	0.32
EM Sovereign	4.61	9.6	9.8	-4.1	14.8	5.4	2.4	2.4	-3.7	30-Yr. Fixed Mortgage	3.11
U.S. High Yield	4.80	17.8	7.0	-2.1	14.1	6.3	1.1	1.1	2.0	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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