Quarterly Investment Review – Q2 2021
Markets continued to move ahead in the second quarter as vaccinations were rolled out, allowing lockdowns to be eased. The vaccination process is most advanced in the US, with Europe a couple of months behind, and the Emerging Markets only really starting their programs now. Nonetheless the stock market recovery of the last year seems incredible against a background where the EU suffered its worst recession since the 1930’s, the world has seen the first rise in poverty for twenty years, and millions of families have seen their prospects and financial situation dashed. The exuberant financial performance has come on the back of the huge double barrelled fiscal and monetary response by governments and central banks, which in turn has led to the question of when these support operations will stop, and whether they will trigger inflation.
The policy response to Covid was extraordinarily aggressive. The fiscal response in the first three months was equal to that of the previous five recessions in the US. US monetary policy produced more QE in six weeks than the total of the 2009-2018 period following the Financial Crisis of 2008. This has led to an abrupt recovery, but more puzzling is this unprecedented stimulus has continued even when the recovery is fully evident. The Fed still buys $40bn of mortgages a month even though there is now a housing shortage. They have said that they are not thinking of reducing their bond purchases of $120bn a month, and do not expect to raise interest rates till 2023 despite the booming economy. The strongest economic recovery since 1945 is being met with the easiest financial conditions on record. At 25% of GDP the recently announced programs of President Biden are greater than Lyndon Johnson’s Great Society programs of the 1960’s. It suggests that the authorities have some doubt as to how well economies would manage if these supports were removed. While the recovery allows the private economy to pick up, there is a big gap to fill. The setbacks and uncertainty caused by the variant strains of Covid also make full unwinding of the lockdowns more complicated. This makes the authorities’ task of judging how and when to withdraw their stimulus much harder.
Will this stimulus translate into higher inflation?
Click here to download the full document.
Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only.
References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. Notz, Stucki provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document.
This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the Notz Stucki Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.
Additional information is available on request. © Notz Stucki Group