Rising inflation remains an important determinant of market reaction this year, as rising yields continue to challenge lofty equity market valuations, especially in the technology sector.
Expectations for the second half of 2021 remain positive for a continued global recovery despite the threat of inflation. The headwinds remain the threat from COVID variants, the patchy global vaccination rollouts and the smoothing out of the bottlenecks in global supply chains.
The Majors
Governments rolled out trillions and trillions of dollars in new stimulus spending in 2020-2021 and central banks adopted ultra-accommodative stances in response to the pandemic-disrupted economic activity.
The economic stimulus outsized those of the 2008 financial crisis.
However, despite the economy still being far from the longer run goals, substantial progress has been seen in economic recovery. Global GDP is projected to grow 5.5% this year.
Commodities
The best hedge against inflation
Commodities and Energies have appreciated this year, positively responding to the easing of Covid restrictions and to the global vaccination rollout. Industrial metals were the biggest gainers, which along with Oil have scaled multi-year highs. The main reason is the increasing demand for construction projects and major appliances, initially and to a large part due to the reopening of the Chinese economy.
Chimerica
USA VS China
Global equity markets are now 32% above pre-pandemic levels and expected to continue moving higher, driven by robust earnings growth, still-attractive valuations relative to bonds, and accommodative central banks.
US Stock market returns since 2020 eerily resemble the 2009 trend that is, the strength of the first year emerging from a deep stock market recession. A similar high price multiple was seen from the 1990's tech bubble.
Chinese companies:
The big beneficiaries of pandemic demand
$966 billion
China has spent $966 billion since May 2020 on fiscal pandemic measures.
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