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April 2021

MARKET PULSE | April 2021

Macro Views


The recent pick-up in vaccine rollout and supply leads us to believe that reaching 60% total immunity level in the US is possible by April. Currently, 29% of the population has received at least one dose and the Good Judgment forecasts a 98% probability that 200 million Americans will be vaccinated by July 2021. The UK will likely be on a similar timeline, with continental Europe trailing by a few months. Read More


With the ~$1.9tn American Rescue Plan (ARP) passed, we have revised our growth expectations for the US up to 7.2% in 2021. The Biden administration has proposed several trillion in infrastructure, healthcare, and education investment. Unlike the ARP, this spending may be less front-loaded and growth impulses will likely be spread over the next decade. Read More

Monetary Policy

The Fed maintained its dovish posture following the March FOMC meeting, despite market pricing for firmer inflation and earlier policy normalization. Fed guidance remains data-dependent and accordingly, we left our forecast for liftoff unchanged (H1 2024) with tapering beginning in 2022. Meanwhile, we expect the BoE to also lead with tapering to reduce rate impact on assets and to create policy room for the future, pushing liftoff to 2025. Read More


Low base effects and transient supply chain constraints should push US core PCE above Fed target in April to 2.3%. Still, sustained inflation remains unlikely – excess spending from one-time fiscal impulses should subside and labor slack may take time to absorb. Meanwhile, disinflationary pressures driven by rental flight from urban settings and bipartisan support for drug price control should keep inflation digestible in the medium-term. Read More

Market Views


Easy financial conditions and an accommodative Fed should continue to fuel equities. However, the next fiscal priority featuring an enhanced infrastructure deal, partially funded by higher taxes, may create headwinds for company earnings. While still fluid, we think the final tax outcome will be more modest than what is currently proposed. We estimate a 3% hit to 2022 S&P 500 EPS ($197), with growth sectors bearing relatively more burden. Still, we advocate for a neutral allocation to both growth- and value-style equities, balancing the near-term cyclical boost with longer-term growth potential. Read More


Although reflation has gained momentum, the growth-driven rates sell-off has kept corporate spreads tight. We maintain our recommendation to actively manage duration exposure with a preference for leveraged loans over HY, supported by a similar carry advantage, positive net inflows, and limited HY upside given a majority of HY bonds already trade above their next call price. Read More


Improved growth and redistributive fiscal policies may extend the commodity rally. For crude oil, rebounding global demand balanced against sustained inventory deficits may outstrip OPEC’s ability or willingness to ramp up production. Meanwhile, a global emphasis on de-carbonization plans should drive up base metal consumption, a critical raw input to clean energy infrastructure. Read More


Relative strength of the US recovery, quicker pace of vaccinations, and higher real rates may support a stronger US dollar in the near-term, though this momentum may be limited by a tamer central bank, rising commodity prices, stretched valuations, and the potential for a broader global growth catch-up. Read More

Core Training

When building portfolios, we believe that not all fixed income assets are created equal. Traditional classification of bonds include a variety of assets with differentiated properties. We think classifying bonds into risk-managing (core fixed income) and return-generating (fixed income diversifiers) may help frame asset behavior, return expectations, and the role of capital preservation. Through our proprietary GSAM PRISM™ analysis, we have found that a more customized approach to implementing fixed income in portfolios may often prove additive.

…may require strategic understanding of CFI and fixed income diversifiers…

Despite investors’ familiarity with the stability of CFI, in practice its implementation does not appear to vary widely across portfolios of varying risk postures. Fixed income is often treated homogenously, but doing so can create a mismatch between portfolio behavior and investor expectation. We believe evaluating fixed income through the filter of risk-managing or return-generating is a key strategic consideration.

Source: GSAM PRISM™.

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