Sovereign Wealth Partners and InvestSense Pty Ltd

Market Commentary

April saw mixed market performance with the Nasdaq ending slightly positive and emerging markets down. Japan emerged as the biggest winner, with the market gaining traction from Warren Buffet’s investment in Japanese commodities trading houses. US earnings season exceeded expectations, especially for Consumer Discretionary stocks, supporting the strong US consumer narrative. However, the drop in real estate and materials earnings could indicate underlying economic weakness and upward pressure on CPI.

Defensive sectors like Consumer Staples, Healthcare, and Utilities performed well globally. Energy and commodity markets, along with gold, pointed towards potential recession. Australian banking and mining stocks underperformed, while defensive sectors and domestic Real Estate Investment Trusts did well.

Central banks have continued to raise rates, though long-term rates only increased slightly, hinting at an expected slowdown. This suggests that market participants believe central banks will eventually pause or reverse their tightening to support economic growth. In the bond market, yields at the longer end have remained relatively subdued, indicating that investors anticipate a potential economic slowdown but not necessarily a sharp recession.

Looking Forward

Although a looming recessionary default cycle may be expected, credit markets have stabilized, suggesting the possibility of a soft landing. Corporate bond markets seem to be pricing in a moderate slowdown rather than a severe recession, remaining at levels seen during the growth scares of 2015 and 2018. This resilience in credit markets provides some reassurance that the global economy may be able to navigate through potential headwinds without falling into a deep downturn.