SSGA: Mid-Year Global Market Outlook 2021

June 15, 2021

In its mid-year Global Market Outlook “A Kernel of Caution in a Robust Recovery”, State Street Global Advisors (SSGA) holds its most optimistic views for years on the direction of travel for the global economy thanks to vaccination rollouts, robust monetary and fiscal support and strengthening of global markets.

SSGA expects the most powerful rebound to begin in Q2 2022 and sees many positive signs for investors and opportunities in both equity and fixed income space. However, the firm also cautions investors of key market risks, including more volatile markets and extreme levels of complacency.

“COVID-related challenges remain acute in many areas, but the situation is improving, even in hard-hit emerging markets. As the US economy surges, European growth is poised to accelerate; emerging markets will soon follow. It appears that US market leadership may soon give way to international markets,” says Lori Heinel, Global Chief Investment Officer at SSGA.

Please see below some key points in State Street Global Advisor’s 2021 mid-year Global Market Outlook (GMO).

Macroeconomic Outlook:

• Pent-up demand and easy money are fueling an impressive recovery in 2021. A meaningful rotation beyond manufacturing and toward services will fuel a broader continuing recovery in 2022.
• Europe and emerging markets are joining the United States in a robust growth trajectory; as the US hurtles past peak economic growth momentum, growth in Europe and in emerging markets is accelerating.
• The current inflation spike is likely to moderate in the second half of the year. However, we expect higher inflation over the next two years (compared to the pre-COVID regime).
• Markets may become more volatile as investors look past peak growth momentum and peak monetary accommodation. 

Fixed Income Market Outlook:

• Sovereign yields appear to have reached a ceiling for now as central banks in general hold policy rates steady.
• We continue to see opportunity in corporate credit as robust growth bolsters credit fundamentals and investors forego low/negative yielding sovereign debt in favor of corporate bonds.

Equity Market Outlook:

• As the growth differential between the United States and Europe starts to narrow and emerging markets continue to make progress against the COVID threat, US market leadership is likely to give way to a more international scope.
• Strong earnings prospects and less-stretched valuations will continue to add to European equities’ appeal.
• We see opportunity in emerging markets, which have the highest earnings-growth expectations in the world.
• Chinese equities offer advantages that justify particular consideration.

Key Risks to Our Outlook:

• Markets are awash with optimism, but they are also at risk of becoming complacent, leaving them vulnerable to shocks.
• The potential for sustained higher inflation poses a key risk, as does any move toward tightened monetary policy.
• Low-volatility equities, options overlays, Chinese government bonds, and real-asset strategies may be helpful approaches to manage risk.