After reviewing several midyear investment review documents from firms such as J.P. Morgan Asset Management, T. Rowe Price, Capital Group (American Funds), Morningstar, and others; I decided to summarize the common themes presented.
The first ½ of 2021 global growth accelerated lead by the U.S. and China. China was able to recover from the Covid-19 much faster than the U.S. because of cultural climate. However, the U.S. has rapidly distributed the vaccine and by July 4th is projected to reach the magical number of 70% immunity.
International growth during the first half of the year was uneven but is expected to accelerate as vaccines are distributed. This expected stronger economic cycle abroad is expected to push the U.S. dollar lower.
During the first half of 2021 value and small caps outperformed growth and large caps for the first time in more than 10 years. This trend is expected to continue and if the dollar weakens, emerging markets and developed Europe as well as Japan are expected to outperform U.S. markets.
Inflation has been the hot topic heading into summer. Several firms provided statistical support reflecting that if inflation remains in the 3% – 4% range it is good for stocks but if it ticks above 4% then earnings are hampered which in turns leads to a choppy or downward market.
Pent up demand and fiscal and monetary stimulus should sustain above average economic growth which could force the Fed to taper bond purchases in late 2021 rather than 2022 as they have stated. Expectations are that the Fed begins to raise short term interest rates some time in 2023.
Themes mentioned were:
Immigration, or lack thereof is leading to less folks in the work force which in turn is leading to wage inflation.
Acceleration of decentralized finance is leading to less emphasis on money center banks. Crypto-currency such as Bitcoin and other benefactors of block-chain are changing the financial landscape around the world.
Higher interest rates weigh heavily on technology and other growth companies. Meantime these higher rates typically mean a steepening yield curve which tends to drive earnings for banks.
ESG – Environmental, Social, and corporate Governance refers to metrics related to intangible assets. The ESG theme may well be the defining theme of the decade. Activist investors are demanding higher ESG awareness from corporations. Reputable firms such as BlackRock have made profound investments in ESG platforms. As an example – together BlackRock, Vanguard, and State Street effectively shut down Exxon’s recent annual meeting which resulted in 3 new board members, all of which support moving Exxon toward a more favorable ESG culture.
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