After experiencing one of the worst quarterly performances on record, financial markets rebounded strongly in April as investors bet that the Covid-19 pandemic’s impact on the global economy will be transient.

Equity and bond markets rebounded strongly in April from their previous sell-off.

For US equities, the $260 billion SPDR S&P 500 ETF (SPY US) gained 12.8% during the month, while the $20bn SPDR Dow Jones Industrial Average ETF (DIA US) rose 11.2%.

The strong returns reflect the best monthly performances for the underlying S&P 500 and Dow Jones Industrial Average indices since January 1987.

The Nasdaq 100 Index, however, had the best showing amongst major US equity benchmarks with a 15.2% gain resulting in a tidy profit for the $100bn Invesco QQQ Trust (QQQ US).

The robust performance of the Nasdaq 100 highlights how tech companies have been leading the recovery, driven by resilient balance sheets and a shift to networking, communications, and online-shopping services during the global lockdown. The top five companies in the Nasdaq 100 (Microsoft, Apple, Amazon, Alphabet, and Facebook) collectively account for 45% of the index’s weight.

QQQ is up 3.3% year-to-date, whereas SPY and DIA are trailing with losses of -9.2% and -14.0% respectively.

April also saw a return to risky assets across the Atlantic with the $5.7bn iShares Stoxx Europe 600 UCITS ETF (0MLD LN), the largest ETF to track the pan-European Stoxx Europe 600 Index, gaining 8.2% in euro terms.

The $5.1bn Lyxor EURO STOXX 50 UCITS ETF (MSED FP) rose 6.4% in euros, while the $9.4bn iShares Core FTSE 100 UCITS ETF (ISF LN) was up 5.9% in pound sterling.

Europe’s recovery has lagged that of the US for a few reasons. While the Federal Reserve successfully restored confidence with its willingness to do whatever it takes to support markets, investors have reportedly been underwhelmed with the European Central Bank’s response.

The pandemic has also highlighted the region’s political divisions with EU leaders failing to agree on a coronavirus economic recovery program.

Additionally, Europe has suffered a larger share of dividend cuts or suspensions compared to the US as corporates grapple with cash flow issues caused by Covid-19. With dividends accounting for a greater proportion of equity returns in Europe, the scaling back of payouts has further dented confidence.

The $47bn iShares Core MSCI Emerging Markets ETF (IEMG US) banked a 9.0% gain during April as investors shrugged off concerns that healthcare infrastructure in developing countries would be overwhelmed by Covid-19.

The positive performance started to recoup the fund’s previous losses after it experienced a fall of -31.4% between 20 February and 23 March. Emerging markets suffered a brutal sell-off due to the dual effects of a global economic shutdown as well as a flight from developing currencies in the face of the crisis.

Looking ahead, emerging markets face an uncertain period. The full extent of the virus’s impact on these countries is relatively opaque, geopolitical risk is returning as evidenced by renewed tensions between the US and China, and technical indicators in foreign exchange markets suggest that emerging market currencies may be consolidating previous losses before plummeting lower.

Turning to fixed income, after ending the first quarter firmly in negative territory, corporate bond markets also experienced a significant recovery in April.

Investment-grade bond prices rose during the month owing to the Fed’s decision to support credit markets by buying investment-grade corporate bond ETFs. The US Central Bank surprised the market further mid-April when it said it would extend its asset purchasing program to include high-yield ETFs.

The announcements led to major interest in the largest ETFs covering these markets – the $46bn iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD US) and the $20bn iShares iBoxx $ High Yield Corporate Bond ETF (HYG US) saw net inflows of $4.1bn and $3.7bn respectively during April as investors sought to front-run the Fed’s action. LQD and HYG were up 5.5% and 3.5% over the month.

While the recovery in April is a welcome relief from the carnage that unfolded in markets during February and March, many analysts are wondering if the rally has run too far. The continuing rise in asset prices stands in contrast to a barrage of negative economic data from rising unemployment to contracting GDP.

With the timing of the pandemic’s end still uncertain, and scientists warning of the potential for a second wave of infections if restrictions are lifted too quickly, what direction markets will go in May is unclear.