Market Commentary – Second Quarter 2021

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Dramatic Market Leadership Changes & Fed’s Timeline for Eventual Tapering

Markets rotated from long-duration Secular Growth to short-duration Cyclical Value during the first half of 2021. Value dramatically outperformed Growth until mid-May but experienced a major reversal since then alongside the US dollar. The 10-year UST yield declined to 1.4% after reaching the peak of 1.7%.

  • The Fed keeps rates on-hold and its asset purchase program unchanged and reiterates “substantial further progress” will be needed before tapering. The June dot plot projections show rate liftoff could start as early as 2023, one year earlier than previous forecast, suggesting the committee has brought forward its expectation of eventual tightening – to learn more click HERE
  • After disappointing data release in both April and May, US Nonfarm Payrolls surprised to the upside in June adding 850,000 jobs. But the unemployment rate rose 0.1% in June to 5.9% with a notable increase in participation among prime-age workers. The 10-year UST yield was lower following the payrolls, suggesting the bond market believes the US economy isn’t overheating.
  • US ISM manufacturing index fell to 60.6 in June but remained in the expansionary territory. Manufacturers continued to report significant supply chain challenges including persistent semiconductor component shortages, difficulty in finding labor, and rising commodity prices.
  • Canada’s GDP declined in April due to restrictive measures taken to combat the virus but shows signs of improvement. Firming consumer confidence and rising retail sales point to better days ahead for the European economy despite the rapidly spreading Delta variant of the virus.
  • Style-wise, Secular Growth underperformed Cyclical Value in the first half of the year, and Large-cap slightly underperformed Small-cap. Sector-wise, Energy and Financials led, whereas Utilities lagged.
Index Performance Q2/21 Return YTD Return 07/02/2021
TSX +7.8% +16.0%
Dow +4.6% +13.7%
S&P 500 +8.2% +15.9%
NASDAQ +9.5% +13.6%
Russell 2000 (Small-cap) +4.3% +16.8%
US 10-year Treasury yield 1.47% (-25 bps) +52 bps
Canada’s 10-year GoC yield 1.39% (-17 bps) +70 bps
US Dollar Index (DXY) 92.4 (-1%) +2.6%
WTI US$/bbl $73.5 (+23.6%) +54.8%
Gold US$/oz $1,771 (+3.6%) -5.8%
VIX (30 day) 15.8 (-18.4%) -34%



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