US market lagging most other equity markets so far this year

US Equities ended the month nearly unchanged, although on a slightly positive note. They have been lagging most other equity markets so far this year, partly because of investor concerns about the impact of a stronger USD on profit margins and about the consequences of the Fed’s exit strategy. On the other hand, the strong currency has helped performance in the case of non- USD based investors.

The latest Fed statement largely lived up to expectations: although the economy slowed during the winter, the outlook remains positive.

The best performing sector during April was the energy sector, which outperformed strongly as oil prices rebounded. On the other hand, there was some profit-taking in the healthcare sector.

• Overall the earnings season was good, with controlled cost management. The current level of the USD remains a headwind for most sectors.
• Sector-wise we remain positive on Healthcare. The current underperformance was due to some volatility on the Biotech side.
• After mediocre earnings releases and a long period of outperformance, we reduced the IT sector to more neutral levels.
• The positions in Industrials have also been reduced, as we see a lack of capex and we have reinvested in Consumer Discretionary.
• In Energy, we moved to neutral to mirror the rise in oil prices.
• As for Telecoms, we reverted to a neutral stance as we see no negative points in this sector and it should be seen as a defensive play in a stalling economy.
• We increased or initiated positions in, among others, Estee Lauder, KMB, PG and Starbucks, while reducing positions in, for example, TE Connectivity, Texas Instruments, Apple and Fedex.
• With the combination of low interest rates, reasonably priced equity markets, high free cash generation, increasing dividends, stock buy-backs and a lot of M&A activity, the environment for rising equity markets is still in place.