Important information: The value of investments and the income from them can go down as well as up, so you may get back less than what you invested.

Halfway through this year of post-pandemic recovery, it seems, at first glance, that investors have a lot to be positive about. Stock markets continued to climb amid signs of a global economic rebound and expectations that government spending and pent-up consumer demand will lead to a strong recovery in profits in 2021-22. The persistence of historically low interest rates has continued to propel investors into riskier assets with positive results so far.

Bonds, on the other hand, fell amid these economic polls. Rising inflation – which is already there – and the prospect of higher forward interest rates mean an increasingly difficult time for assets paying fixed income. Bonds retain their appeal as a safe haven during times of market stress, but continue to lose to equities in a world of rising growth and inflation.

At the same time, the performance gap between growth stocks and stocks of companies in traditional sectors has narrowed. Competing narratives of companies able to capitalize on the big technological changes promised for a post-Covid world and of companies directly benefiting from the return to normal economic conditions may well keep investors occupied for the remainder of this year and beyond. of the.

Since the start of the year in America, the Dow Jones Industrials Average and the tech-laden NASDAQ Composite have posted almost identical returns. Both indices hit new point records in the past six months, with NASDAQ being the most recent winner1.

European stock markets, with the notable exception of the UK, posted even higher returns than the US. Starting from a lower base and reflecting an earlier stage of economic recovery, European equities have responded positively to the improving domestic outlook and increasing purchasing power of a US economy and a strong dollar.2.

Asian markets have been more disappointing, with new coronavirus outbreaks – even in countries that have avoided previous waves like Australia – weighing on sentiment. India and Malaysia have also been hit hard, while a state of emergency has recently been extended in Japan. A credit slowdown in China – triggered after a record lending period in the first quarter of the year – has been another cause for concern3.

The most notable economic events so far in 2021 have been outsized economic growth figures – albeit boosted by easy comparisons to 2020 – and rising inflation. In the developed world, the US economy led the way in the first quarter, growing 6.4% from the same period a year earlier. China saw a surprising growth of 18.3% in the first quarter, although this must be seen against the background of a deep decline in the economy as the coronavirus first struck during the same period. in 20204.

In the United States, the Federal Reserve’s preferred measure of inflation (basic personal consumption spending) rose at an annual rate of 3.4% in May, well above target5. Clearly, this is already causing some concern at the Fed. In June, a majority of its policymakers expressed the view that U.S. interest rates would be hiked by 2023, a year earlier than previously thought.

From then on, we can expect another period of strong growth in the United States, which suggests that the environment for investors will not be much different from that of the first half of the year. The end of restrictions in Europe and Japan and in emerging markets like India and Brazil are also expected to increase the acceleration of global growth, an event that should help ease the pressure on the stocks of the most severely affected companies. by blockages, such as cruise lines airlines.

As the recovery deepens, we may also see a greater rotation of the US to other markets with catching up potential and economically sensitive stocks opening up a lead over their growth stocks rivals. Europe, which is starting to close the gap with the United States in economic terms, could offer new opportunities in this regard. Data released this week showed European manufacturing growth to a 24-year high6.



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