A relatively modest growth rate for the US economy

Sentiment in the US was hurt by the publication of rather weak job data (only 160,000 jobs had been added in April, well below the consensus expectation of 200,000). This came on top of the publication of other rather soft data such as manufacturing surveys, factory orders, shipments and even consumer-spending data.

All in all, since the FOMC raised rates in December, the US economy had been growing at a relatively modest pace.

Sentiment started to improve with the publication of more encouraging data later in the month. Retail sales surged +1.3% m-o-m in April and the preliminary results from the University of Michigan’s consumer sentiment survey for May also showed notably more optimism. 

The Minutes of April’s FOMC meeting pointed to a stronger economy and read more hawkish than anticipated by most investors. On 29 May, Janet Yellen stated that the ongoing improvement in the US economy would warrant another interest-rate increase “in the coming months".

At sector level, the energy sector, which had been nicely rebounding, suffered some profit-taking despite an ongoing recovery in oil prices. On the other hand, investors were seen chasing some tech, with Apple rebounding on bargain-hunting. During this risk-on move, investors preferred to buy growth stocks rather than value stocks.

• We have reduced positions in Industrials and Materials and reinvested the proceeds mainly in Healthcare and IT.
• We raised or initiated positions in, among others, Apple, Amgen, NXPI, Amazon and Johnson&Johnson, while reducing or selling positions in, for instance, Fedex, Occidental Petroleum and EOG Resources.
• Currently, the most important sectors in our strategy are Consumer Discretionary, Consumer Staples, Healthcare, Industrials and IT.
• Our largest active positions are Medtronic, Pepsico, Time Warner, Nike, Accenture and Johnson&Johnson.
• The IMF expected world economic growth forecast of around 3.2% in 2016 and 3.5% in 2017 seems very challenging in the current environment.
• However, as we currently observe some early macroeconomic improvement in the US and even in Emerging Markets, we think that our portfolio should be gradually reoriented towards more cyclical sectors.
• The low interest-rate environment, reasonably priced equity markets, high free-cash generation, increasing dividends and stock buy-backs, M&A activity and decent Q1 results still warrant a cautiously optimistic scenario for the equity markets.