US market lagging most other

For Euro-based investors, the current strength of the dollar has helped mitigate the sluggish performance in local currency.

While the minutes of the Fed’s April meeting made it clear that an interest-rate hike in June was rather unlikely, the dollar strengthened globally after Fed Chair Janet Yellen reaffirmed that the FOMC was on track to raise rates this year if the economy evolved in line with its forecasts.

In contrast to the most recent economic releases, data released in the second part of the month (readings on manufacturing, housing and consumer and business sentiment, and the second estimate of Q1 GDP) were generally above expectations.

Equities were also supported by better earnings and by a series of acquisitions. Tech stocks were particularly in focus, with the planned acquisition of Broadcom by Avago, of Altera by Intel and of Time Warner Cable by Charter Communication. Energy stocks, on the other hand, kept lagging.

• Sector-wise, we remain positive on Healthcare. We took advantage of a small period of healthcare-sector underperformance to increase positions.
• We remain negative on Utilities (given the rate environment), Consumer Staples and Industrials.
• For these last two, we could revert to neutral shortly. It will depend on the rate evolution for Staples and on the evolution of Capex for Industrials. The latter clearly lacks momentum.
• On the Financials sector, we remain positive on Banks (mainly regional ones like KeyCorp) but neutral overall.
• Our positive allocation in Consumer Discretionary and Health Care have been very profitable.
• We raised or initiated positions in, among others, Mead Johnson Nutrition, Amgen, Estee Lauder and Centene, while reducing Walt Disney.
• 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.