A Kernel of Caution in a Robust Recovery:
Positive signs abound as economic growth heads for multi-decade highs, companies report strong earnings, and volatility recedes. At the same time, rising input costs and strong demand are fueling inflation — which may settle in at higher levels than investors are accustomed to. Our own Market Regime Indicator suggests that markets are treading a fine line between optimism and a degree of euphoria that may be a sign of complacency. How will markets lulled by so many positive signs react to the inevitable shocks — including those related to inflation — that may punctuate the months ahead?
In this mid-year update to our 2021 Global Market Outlook, we refresh our macroeconomic outlook and our current tactical positioning. We also raise a set of key themes that arise from our outlook on fixed income and on equities, and identify the risks that we see on the horizon.