By the Sun Life team
The past few months have been good for most major global stock markets—especially where vaccination is progressing, and the reopening of the economy continues. Read on our view on the global economy and financial markets for the second quarter of 2021.
Highlights
Efforts to vaccinate the world’s population continue to bear fruit.
After a slow start in Canada, vaccination accelerated sharply in the second trimester. US equity markets are strong and hit all-time highs in the second quarter. The NASDAQ Composite Index has been volatile. This is due to the fear of the impact of rising inflation on the valuations of stocks related to information technology. Rising commodity prices and the reopening of the economy have boosted Canadian markets. Rising demand has pushed the price of oil to multi-year highs. Advances in vaccination have bolstered the prospect of a full recovery in oil demand. (A quarter is a period of three months. The first quarter (Q1) runs from January to March. The second (Q2) is from April to June. The third (Q3) is from July to September. fourth (T4), from October to December.)
Have vaccines boosted investor confidence?
The outlook for a strengthening global economy continued in the second quarter of 2021. The continued deployment of vaccines helped boost optimism.
Improved economic conditions boosted investor confidence. They became more optimistic about the markets during the quarter.
Which economies have held up the best?
The US and Chinese economies have been among the strongest in the world. Others continued to suffer the effects of confinement, with infection rates still worrying. Japan and Europe posted some of the worst economic performances.
The economic risks associated with the pandemic have not disappeared. It will still take time for the global economy to recover fully.
Where are the interest rates?
Most of the world’s major central banks left interest rates unchanged during the quarter.
The United States Federal Reserve (Fed) has indicated that it may raise its key rate sooner than expected. This caused the markets to fall. The prospect of two rate hikes by the end of 2023 rather than 2024 has offended investors.
Have the financial markets recovered?
Global stock markets rose in the second quarter of 2021. Investors remained cautious on the outlook for inflation and rising interest rates.
In the United States, markets have reached all-time highs. The Canadian and Japanese markets also posted gains. This is also the case for specific needs in Europe and Australasia.
Long-term global government bond yields declined over the period. Central banks bought bonds to support economies. These bond-buying programs have contributed to the continued decline in bond yields.
Where is the price of oil?
The oil price soared during the quarter to reach levels not seen in several years. The market expects oil demand to rise as travel resumes.
Where is the price of gold?
The price of gold also rose during the period. Gold is a popular investment for investors concerned about inflation.
How’s the Canadian market doing?
Canada continues to do well. The Canadian stock market advanced during the quarter. The energy and information technology sectors led the way. The S&P/TSX Composite Index hit a record high during the quarter.
Long-term Government of Canada bond rates declined during the quarter. This decline is partly explained by the Bank of Canada’s assumption that inflation is likely to be temporary. Canada may not need to raise rates if it does not worry about accelerating inflation.
The inflation rate in Canada was 3.6% over 12 months in May, its highest level since 2011.
The Canadian economy continued to grow, but not as much as economists had expected. Economic growth has been boosted by consumer spending and a strong housing market.
Economists feared economic activity would falter due to lingering pandemic-related issues.
In many parts of Canada, lockdowns have led to job losses. The unemployment rate rose slightly in Canada during the period.
Does the pandemic still pose a risk to the global economy?
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