Published On: July 12th, 2021|By |Categories: Market Updates|2.2 min read|

The decline in U.S. bond yields in the face of strong economic and inflation data was the prominent feature of financial markets in Q2 (graph below). Some market participants interpret this bond market behaviour as signaling a relative speedy return to pre-pandemic anemic growth and inflation norms. Inflow into mega-cap technology has picked up as a consequence.

US 10 Year Treasury Yield | Mpartners Vermogensbeheer

Source: Strategas Research Partners

At this point, there is very little hard data to bolster this view. Real economic data continues to exhibit positive momentum as witnessed by the strong recovery in U.S. employment this past week. European data continues to improve (graphs below) as pandemic induced restriction are eased.

Germany Current Macroeconomic Cond | France Household Confidence Indicator

Source: Strategas Research Partners

Despite early signs of cost inflation, corporate earnings expectations continue to rise for 2021 (graph below). Expectations were already high at the beginning of the year when U.S. companies were expected to grow earnings by +23% (almost 4x the long-term average). After a strong Q1 reporting season and continued evidence of economic momentum, this number has increased to almost +37% as we enter the Q2 reporting period.

2021 S&P 500 Year-Over Year Ernings Growth Rate | Mpartners Vermogensbeheer

Source: Strategas Research Partners

Our base case remains that we have yet to see the highs in yields or earnings and that the market recovery will continue to be led by the traditional value sectors. The extreme upward price move in these sectors had attracted huge inflows in the first quarter of this year that left these sectors vulnerable to an overcrowded positioning. Recent ETF flow of funds data seems to indicate that this overcrowded positioning has been corrected for the most part in Q2 (graphs below). This should allow for a resumption in market leadership in the second half of the year.

Financials Sector ETF flow of funds

Source: Strategas Research Partners

Industrials Sector ETF flow of funds

Source: Strategas Research Partners

While we expect market returns to remain solid in H2, we are cognizant that from a seasonal perspective we are entering the weakest quarter of the year. In addition, while the positive upward trend of the market remains intact, evidence has been building of a recent loss of underlying momentum (charts below). The new highs recorded by market indices during the past month have been achieved with the participation of far fewer stocks. Investor sentiment indicators are also showing growing investor complacency. This combination of seasonality, market breadth and investor sentiment do suggest that the probability of a mild market correction has increased.

S&P 500 Quarterly Performance | Beleggen Blog

Source: Strategas Research Partners

S&P 500 Momentum| Mpartners Investing

Source: Strategas Research Partners


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David Williams (1970) is verantwoordelijk voor het beleggingsbeleid van Mpartners. Na een korte carrière bij het Ministerie van Buitenlandse zaken van Barbados begon David in 1997 bij Insinger de Beaufort Asset Management en in 2002 werd hij director. Hier droeg hij verantwoordelijkheid voor het investment team en de beleggingsfondsen (zowel long-only als gehedgde portefeuilles). Zijn specialisatie is Europese aandelen. In 2010 heeft hij samen met de andere partners Mpartners opgericht. David Williams heeft een B.A (Honors) van de University of Kent, een M.Sc. in Internationale Politieke Economie van de London School of Economics en een MBA van Nijenrode.