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Vantage Point: Air Pocket

Welcome to another edition of Vantage Point. The worldwide economic recovery from the pandemic has been extraordinary. It is worth dwelling on this since good news is often lost in the maelstrom of pessimism that dominates the media. By the middle of 2021, world GDP had not only surpassed its pre-crisis level of economic activity, it was now within a few percentage points of the pre-crisis trend. Despite the bright background, attention is once again shifting towards the challenges ahead.

Monthly Market Roundup

 

OCTOBER 2021

Volatility Picks Up

  • Global stocks lost 4.1% in September, the worst decline of the Covid recovery.
  • Losses were widespread with both emerging and developed markets falling ~4.0%.
  • In the US, growth stocks (-5.7%; 14.6% YTD) and the NASDAQ suffered the most (-5.3%; 12.7% YTD) followed by the S&P 500 (-4.7%; 15.9% YTD) and Russell 2000 (-2.9%; 12.4% YTD).
  • Led by a 9.5% gain in oil to the highest in ~seven-years, commodities and energy stocks outperformed while all other sectors were lower.
  • Major bond yields increased as central bank communication turned more hawkish and inflationary pressure picked up.
  • The 10-year US Treasury and German bund gained 18 bp, the most since March and February, respectively.
  • Despite heightened risk aversion, US high yield credit spreads were flat and investment grade even declined.
  • However, as China growth and credit contagion concerns escalated, spreads for emerging market USD denominated debt gained 21 bp or the second most since March 2020.
  • Risk-off sentiment and higher rate differentials drove the USD 1.7% higher bringing the YTD return to 4.8%.
  • Signs of supply-side bottlenecks leading to production difficulties, resource shortages, and higher input costs increased.
  • Going forward, what we are watching is whether supply chain bottlenecks ease, hiring conditions in labor markets improve, excess savings built up during lockdowns are spent by consumers, and Chinese policy stabilizes growth momentum and credit concerns in the property sector.
  • Given the strength of the global economic recovery that was quicker than most forecasts, we remain positive but the outlook has become more uncertain and higher volatility should be expected.
  • The varying stages of the economic recovery and vaccine rollout globally and subsequent inflation and policy risk suggests a more active and global approach to investing.
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SEPTEMBER 2021

Still Strong but Slowing Growth Momentum

Global stocks gained 2.5% in August bringing the YTD gain to 16.2%. Positive returns were widespread as both developed and emerging markets were ~2.5% higher.

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AUGUST 2021

Desynchronized Recovery

Concerns around peak growth, peak earnings, the delta variant, and less synchronized recovery have increased.

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Points of View

What’s priced into markets?

Yield curves, regimes and investments
 

In this note, we decompose the change in interest rates to define different macro regimes and implications for multi-asset returns.

 

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The global economy remains broadly on track for a strong recovery, though...

The good news is not evenly distributed across countries and inflation concerns remain.

 

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Global Economics and Investment Analysis Group

Meet the minds behind the research.

Shamik Dhar

Chief Economist

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Aninda Mitra

Vice-President and the Head of Asia Macroeconomics
and Investment Strategy

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Bryan Besecker, CFA®, CAIA

Market Strategist

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Lale Akoner

Market Strategist

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Sebastian Vismara

Financial Economist

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MARK-179764-2021-03-26