The first two quarters of 2021 have been very positive for investment markets around the world. Economic data continues to surprise on the upside. The first quarter saw very strong returns, which have taken a pause in the second quarter. The positive takeaway is that this has allowed earnings to play catch-up to market valuations, which is a very healthy development.
In terms of economic data, growth and inflation were both front and center in the first half of 2021. The economic recovery has been very robust, and GDP growth has continued to print above expectations. This has been very well received by investment markets. However, inflation has also surprised on the upside throughout the first half of the year. This has raised the question as to whether higher inflation will persist into the future, potentially forcing central banks to begin shifting from stimulating the economy through policy to normalizing policy to a more balanced state. Overall, this has caused equity markets to moderate their upward trajectory in the second quarter.
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