Bouncing Back and Then Some

US equity markets continued marching higher in April, driven by strong earnings results and further normalization of economic activity.

The gains were broad-based, with both growth-oriented and economically sensitive industries performing well.

Within fixed-income, longer duration interest rates fell slightly below post-pandemic highs, while short-term rates remain ultra-low across the globe.

Our Perspective

The US economic recovery is fully reignited as the distribution of the various COVID-19 vaccines has enabled economic reopening. First quarter economic growth was robust, and growth expectations for the rest of the year are as high as they have been in decades.

Fiscal policy attitudes have shifted and are exceptionally loose, with today’s discussions geared toward adding more fuel to the fire, not less (i.e., infrastructure). And at the same time, indications from the Federal Reserve suggest that the central bank is prepared to keep prioritizing growth, leaving interest rates lower for longer.

The strengthening trajectory of the US economy is starting to impact corporate financial statements. First quarter earnings results have been among the strongest on record, providing further fundamental support for the ongoing stock market rally.

Turning to Infrastructure

After completing another round of COVID-19 stimulus, the Biden Administration has turned its attention to the final two phases of its Build Back Better Plan: the American Jobs Plan; and the American Families Plan.

Of the two, the American Jobs Plan is closer to reality, although major differences remain between the President's proposal, Republican views, and more centrist Senators.

Our Perspective

We believe the US needs a serious infrastructure upgrade, but it is unclear where that money is going or if those expenditures will be offset.

President Biden introduced several funding measures, including proposals to increase the corporate tax rate from 21% to 28%, end fossil fuel subsidies, and raise the global minimum tax from 13% to 21%. Some amount of deficit spending is more than likely, too.

Of course, these are just proposals, and we anticipate resistance to more dramatic increases in spending and taxes. Should some form of these bills pass, it would support the economy, at least for the short-term.

For more on the economic recovery, market rally, and stimulus, check out a replay of one of our recent webinars.

COVID Lessons and Biopharma

During April, the US marked a milestone of having distributed over 200 million vaccination shots. It was a long road to get here, but the path to herd immunity is within sight.

Our Perspective

In our view, the speed at which the COVID-19 vaccines were developed, the efficacy of those vaccines, and the ability of the entire industry to band together to distribute them at mass has been a remarkable achievement, surpassing our expectations and generating significant good will.

For several years now, the biopharmaceuticals industry has been under quite a deal of political and regulatory scrutiny. We believe the likelihood of some type of regulation is reaching a peak, and our view is that, with a little good will on their side, the regulation will be less severe than many expect.

Additionally, many of these companies have deep research & development pipelines that we think are undervalued, and the combination of these reasons have led us to find a number of attractive opportunities in these areas today.

For more, check out our recent blog post, Moving Beyond COVID in Biopharma.

Our View
Economic Cycle		Vaccines, economic re-openings, and fiscal stimulus has dramatically reaccelerated the pace of the recovering, substantially boosting economic activity and business/consumer confidence
Stock Market		The US stock market is well past pre-pandemic levels and at all-time highs; valuations are broadly elevated, which, alongside rising interest rates and inflation, pose significant risks
Bond Market		While still depressed by historical standards, interest rates at post-pandemic highs; corporate and municipal bond credit spreads have significantly tightened, and in some cases, are depressed beyond pre-pandemic levels
Foreign Exchange		While we believe the dollar may weaken longer-term, in the short-term, it is difficult to make the argument that currencies will swing significantly
Important Issues on the Radar		COVID-19: we believe the worst of the crisis is behind us, and the US appears to be finally on track for a once and for all economic re-opening, driven by vaccine efficacy and distribution
		Trade Tensions: relations are in structural decline as China focuses on becoming a self-sufficient, global hegemon, potentially impacting global trade and supply chains
		China Credit Cycle: China is further along in its economic recovery and its credit cycle appears to have peaked, potentially creating a capital markets headwind ahead
		Inflation vs. Deflation: the significant demand shock and remaining economic slack are disinflationary broadly, but certain bottlenecks may lead to some transitory inflation issues near-term

Indicates change

All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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