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Q2 Macro Commentary

July 16, 2021    by Jordi Visser

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The post-pandemic surge we witnessed in prior months continued in the second quarter in the stock market.  The S&P 500 Total Return Index finished Q2 up 8.55%, making it the fifth consecutive quarter of gains over 6%.  Since March 31, 2020, the S&P 500 Index generated an astonishing +70% total return, which is its largest five quarter gain since the Great Depression.  Commodities also completed their fifth quarter in a row of strong gains, with the Bloomberg Commodity Index up 13% for the largest quarterly gain since 2010.  In credit, spreads continued to tighten highlighted by High Yield spreads narrowing to new 10-year lows. 

The dollar was little changed.  Despite strength in risk assets, rising consumer confidence, strong economic data, high inflation data, and the Fed moving up its expectations of rate hikes, we saw a fall in 10-year rates. Specifically, US 10-year yields were down each month and finished 27 basis points lower at quarter-end.  The move lower in rates caused factor trends within the equity market to consolidate the recent gains, specifically in value over growth and reflation-related areas. 

Finally, dispersion and volatility dropped during the quarter as active managers looked ahead to forecast which sectors would lead as we appear to have hit peak economic growth rates. As of now, we believe the global reopening, supply shocks and labor shortages are the main stories entering the third quarter. The market seems poised to increase volatility in the second half of 2021.


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