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July 28, 2021

Second quarter of 2021

Hello everyone,

Summer's looking more promising, given the good news about the vaccination rollout and the lifting of some restrictions in Quebec and Ontario.

We’re starting to get a foothold on the pandemic and economies are quickly reopening in industrialized countries. Now that businesses, factories and restaurants are open, economic activity is moving in the right direction. Canadians and Americans have never had such a big nest egg, which suggests that consumer spending will be on the rise in the coming months. Consumer spending comprises the largest component of GDP, and high consumer spending drives economic growth.

Canada

In Canada, the energy and materials sectors continued to grow, which has been positive for our economy. In May, inflation reached a 10-year high, prompting the Bank of Canada (BoC) to review its bond purchases ad slightly tighted its monetary policy. The Canadian dollar gained strength, bringing the CAD/USD exchange rate close to 0.8350.* The BoC didn't make any changes to the key interest rate during the last meeting. It will be interesting to read BoC Governor Tiff Macklem to get an idea of the upcoming key rate hike; this will give a good indication of the country's economic growth forecasts. The fact remains that Canada was the best-performing region in the first half of 2021, supported by the increase in materials and energy.

*Source: Market-Q

United States

In the US, the reopening of the economy is already well underway, which is having a positive effect on the US equity markets. Monetary policies are still very accommodative, and Federal Reserve Chair Jerome Powell has repeatedly said that easing will remain in place until the economy is strong enough (that is, until there is a strong labour market). However, we note that the tone of the speech has changed slightly due to the increase in inflation recorded last month. The next key rate hike is planned for 2023, one year earlier than expected.

Europe

Vaccine rollout in Europe has accelerated, and a more sustained reopening of economies is on track for the second half of 2021. The European Union stimulus package will help southern European countries maintain their recovery. The region's post-lockdown recovery should be extremely strong, and GDP should rebound by about 5% this year in the wake of last year's nearly 7% decline. Several managers expect European stock exchanges to outperform in 2021.

We expect the MSCI EMU Index, which reflects the European Economic and Monetary Union, to outperform the S&P 500 in 2021. Thanks to Europe's exposure to financial securities and cycle-sensitive sectors (such as industry, materials and energy), as well as its relatively low exposure to technology, it has the potential to outperform.*

Asia 

Japan is lagging, with only 15% of the population vaccinated, but should hit 50% by late August as the rollout accelerates. We're expecting a strong economic recovery in the second half of the year, spurred by heavy global investment spending and the relaunch of services on a national level (including the Olympic Games).

Chinese economic data has been mixed, but the base case remains that growth will be solid through this year. The credit impulse has deteriorated slightly faster than expected, but we suspect that most of the slowdown has been brought forward to the first five months of the year. There is still some catch-up potential from domestic consumption, and the production side of the economy should benefit from the global economic recovery. Of course, it would be remiss to discuss the outlook for China without touching on tensions between the U.S. and China. The two sides have recently met, with nothing substantial arising. The agreement on climate initiatives was a minor positive, but we think that tensions are likely to remain elevated.*

*Source: Russell Investments. 2021 Global Market Outlook – Q3 Update. 

In a nutshell, the markets have been relatively quiet over the past 3 months. Investors will remain cautious in the second quarter, looking for the next wave of good news to justify a potential stock market increase. We must remain cautious; remember that the pandemic is still ongoing and that a fourth wave—although we hope to avoid it—can put the brakes on expected economic growth. The best way to limit volatility is to rebalance and maintain our asset mix, which is what we've been doing for several years now. 

If you'd like to discuss anything or have questions, feel free to contact us. 

Have a wonderful summer with your friends and family. 

Thank you and have a great day!