Market Overview – 05/07/2021

Global stock markets performed well in the second quarter, adding to gains made in the first three months of the year. Despite some anxiety about rising inflation pressures and what that might mean for the timing of prospective interest rates rises, equity markets took to heart comments from central bankers who described recent inflation data as transitory rather than permanent. The best performer among the major markets was the US, rising by around 8% in Q2, generating returns to date of over 14%. Although it seems unlikely that this level of performance can be repeated over the next six months, there may be some comfort in data which shows that over the last 70 years, if the US market delivered a double digit return in the first half of the year, it never closed the year in negative territory. There’s always a first time for everything however!

Sticking with the US, employment data released on Friday showed 850,000 new jobs created in June, a much stronger figure than the previous two months. There is no question that where vaccine rollouts are in place, economies are starting to re-open and this is contributing to improving growth and employment data. Commentators are now describing the US economy as being in a “Goldilocks” phase – not too hot and not too cold. This assumes that the central bankers are right though, and that the currently elevated inflation numbers will subside as base effects (year on year rises) drop out of the figures. It may be some months before this happens, however, but in the meantime, markets look like they will enter the normally quieter summer period in a more optimistic frame of mind.