Month in the markets: rotation to value stocks slows in April

The move from growth to value stocks has slowed over the past month. 

April was mostly a good month for stock markets around the world, thanks to continued optimism for a post-pandemic economic recovery.

The S&P Global BMI, an index of 11,000 stocks from 25 developed and 25 emerging markets, gained 4.3% over the month. The global index has returned 9.77% in price terms since the start of the year.

Of the 50 countries included in the index, 42 saw their equity markets advance during the month.

One strong performer was the S&P 500, which gained 5.3%. This was largely the result of US stimulus measures and stronger than expected corporate earnings. Year-to-date, the US headline index has now appreciated by 11.84%.

The rest of the world also performed well, with the S&P Developed ex-US BMI gaining 3.4%. This index has returned just over 7% since the start of the year.

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Europe provided positive returns in April, but lagged the global market, with the S&P Europe 350 appreciating by 2.17%. Since the start of the year, this index has advanced by 11.02%.

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Leading the continent in April were Danish and Finnish equities, each up by 7.1%. UK stocks also did well, with the S&P United Kingdom gaining just over 4%. The UK has gained 9.59% since the start of the year.

Despite a resurgence of the pandemic in Brazil and India, emerging markets as a whole saw positive performance, with the S&P Emerging BMI advancing 2.9%. The index has gained 5.79% year-to-date.

Poland was one of emerging markets' stronger performers in April, rising by 9.9%, followed by Greece (9.2%).

Some of the worst emerging market performance came from Latin America, with Chile losing 8.1% and Peru 7.1%. However, despite seeing heavy losses in the final days of April, the region as a whole saw gains in the month, with the S&P Latin America BMI gaining 4.28%. However, the index is still in negative territory measured from the start of the year.

The large surge in coronavirus cases and deaths was reflected in India’s stock market, with the S&P BSE SENSEX declining 1.5% in April.

However, stocks in Asia as a whole saw gains in April, with the S&P Pan Asia BMI up 2% and most single-country indices also clocking gains. Taiwan’s stocks saw a return of 6.72%, followed by Singapore, with 4.86%. Alongside India, Japan was one of two Asian countries to post losses, with the S&P/TOPIX 150 losing 2.69%.

Market rotation over?

Since November 2020, there has been a rotation away from growth and tech stocks to more value and cyclical stocks. That rotation, however, appears to have slowed down in April.

The S&P Global 1200 Communication Services sector, full of very growthy stocks, gained 6.5% in April, making it the best-performing global sector. Meanwhile, the value and cyclical heavy global energy sector gained just 0.52%.

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The rebound in growth stocks was pronounced in the US market. The S&P 500 Growth index gained 6.87%, outperforming the S&P 500 Value index, which gained 3.92%. Therefore, in April, growth outperformed the wider benchmark and value underperformed.

However, year-to-date, value was still ahead, having returned 14.9% compared to the 9.14% of growth stocks. Value’s year-to-date performance was also comfortably above the wider market’s year-to-date return of almost 11.84%.

Meanwhile, the S&P 500 Communication Services sector was April’s second best-performing sector, returning 7.85%. Energy returned 0.59%.

The slowdown in value stock improvement can also be seen in the performance of equal weighted indices. Around the world, equal weighted indices performed less well than their market-cap weighted counterparts. Notably, however, the S&P 500 Equal Weight Index underperformed the S&P 500 by 1% in April.