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Q2 Vontobel Market Review & Outlook

Fundamental Growth Drivers Continue

Global equities notched up another quarter of solid returns, supported by the further reopening of economies enabled by the loosening of COVID-19 restrictions. Although markets have been buoyant, there are also concerns about the rising threat of inflation due to a recovering global economy, tighter supply chains, and higher commodity prices. The S&P 500® Index progressed to new highs as the U.S. recovery strengthened. First quarter gross domestic product (GDP) growth hit 6.4% and many companies issued positive earnings-per-share (EPS) guidance for the second quarter. In June, markets reacted to Federal Reserve officials signaling that they expected to raise interest rates sooner than previously forecasted, but markets then stabilized on Fed Chair Jerome Powell’s comments that inflation would ease over time and that the central bank would take a measured approach to tightening.

Companies with pricing power should be able to keep pace in an inflationary environment as they generally offer a product or service that is perceived to be essential and where there are few available alternatives. For example, certain strong consumer goods companies, such as Nike, have powerful brands that command high prices and an ability to further raise their prices. Pricing power also comes through in some businesses that are focused on essential maintenance, services, and subscriptions, or where there is recurring demand for products that consumers need, desire, or have a regulatory requirement to consume.

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Index definitions:
MSCI All Country (AC) World measures equity performance of developed and emerging markets. MSCI EAFE® measures developed foreign market equity performance, excluding the U.S. and Canada. MSCI Europe measures equity market performance of Europe’s developed markets. MSCI Japan measures performance of the Japanese market’s large and mid-cap segments. MSCI AC Asia Pacific ex Japan measures equity market performance of Asia’s developed and emerging markets (excluding Japan), Australia and New Zealand. MSCI Emerging Markets measures equity market performance in global emerging markets. MSCI AC World ex US measures equity performance of developed and emerging markets, excluding the U.S. S&P 500® measures performance of 500 of the largest U.S. companies. All indexes are free float-adjusted market cap-weighted and calculated on a total return basis with dividends reinvested.

The commentary is the opinion of Vontobel Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.

Past performance is no guarantee of future results.

All investments carry a certain degree of risk, including possible loss of principal.