“As full of spirit as the month of May, and as gorgeuos as the sun in Midsummer” Shakespeare

Go figure, no sign of an end to the conflict, oil prices may be off the highs from yesterday but remain well above $110  a barrel, a Federal Reserve meeting that as expected produced no change to interest rates, however delivered a more hawkish tone than had been anticipated, 3 of the Mag 4 that reported earnings actually finished the day lower, the exception being Alphabet ending up 10%. Despite all that, the Dow Jones finished 1.6% higher, the S&P 500 and the Russell  2000 both had record closes, and the Nasdaq Composite clinched its best month since April 2020 and its seventh record close of the year, thanks to a rally in semiconductor stocks.

The Vix index finished the day down 10%, trading below 17, well below its historic average of 20, and is back where they were before the attack on Iran. Did someone tell the stock market the war is over and forgot to tell the rest of the world?

I forgot to mention that US real GDP also came in below expectations, increasing at a 2.0% annual rate in Q1, lagging the consensus expected +2.3%.  This data does confirm that the US economy is not in a recession, but it may not be as strong as thought. One economist pointed out that, if one excluded government spending, the number would have been weaker, but the government is spending, so it is a slightly meaningless comment.

The Bank of England did not paint a pretty picture of the UK economy yesterday as the committee voted by 8-1 to keep interest rates where they are. The Bank talked of higher rates, weaker growth, and inflation that could peak above 6% in the worst-case scenario. UK gilt yields across the curve have risen sharply this month, yet sterling remains resilient.

What is also surprising is that the strong recovery in US stocks has not been accompanied by any sort of rally in the bond market. The increase in treasury yields this month, on the back of last month’s rises, may not have been as dramatic as in the UK, but they are still higher across the curve in April. The 10-year gilts are topping 5% for the first time since 2008; 30-year Treasury yields are hitting 5% for the first time this year. Bond markets are betting inflation will rise; if that is the case, one positive for equities is that they are a better place to hide historically.