That was an eventful and interesting first half of the year in financial markets. Now on to the second half of 2021.

Which regions and asset classes will perform the best, and how does the global recovery play out amid increasing concerns about the Delta variant of COVID 19?

For insight, we turn to the Mid-Year Outlook from J.P. Morgan’s Global Research team. They’ve been very accurate in their views during the pandemic so there’s no reason to stop listening now.

Here are some excerpts from their report on why investors should stay long certain types of stocks.


by J.P. Morgan Global Research team

A number of cross currents are in play as a more synchronized global growth cycle should materialize alongside a quicker tapering of Fed asset purchases and an eventual Fed liftoff in 2023.


The outlook remains positive for risky asset classes as growth momentum has not yet peaked and pent-up demand should contribute to global growth surging to a 6.7% annualized rate in the second half – a full 2.5% points above potential.

1. The global reopening is underway, with the rest of the world outside of the US and China set to rebound strongly, as vaccinations ramp up.

The pace of vaccinations is central to the second half outlook as vaccinations and recovery move in sync step rather than sequentially.

We project that ~40% of the global economy will be fully vaccinated by September.

While the Delta variant is a risk factor, our Global Economics Research team points out that the global economy has recovered at a rapid pace despite a second wave that was considerably worse than the first wave for a number of countries.

2. While the economic performance during the pandemic was defined by China and US exceptionalism largely related to policy impulses, Western Europe is a more useful guide to post-pandemic growth dynamics.

Growth in the US and China in the second half should lag the rest of the world. US growth likely peaked in 2Q at an annualized rate of 9%.

We forecast a strong 6.5% annualized rise in global GDP led by bounces in Europe and much of Emerging Markets (EM) excluding China. 

3. The strong growth backdrop supports the reflation trade, and we continue to recommend being long equities and short bonds.

Growth is poised to accelerate further with international re-opening and service-based consumption gaining traction.

This setup is ideal going into the 2021 summer holiday and back-to-school season, which we believe will be one of the strongest on record due to robust demand and pricing environment.

Our equity strategists believe that it is premature to fade Cyclicals and stick with recovery trades and pro-risk allocations, including Commodities and Small Caps.

Value and Cyclicals should outperform Growth and the widening gap between the strength in earnings and stalling price relatives is an opportunity for Cyclicals vs Defensives. 

4. US inflation will remain elevated in the second half of 2021 (2H21) with notable upward pressure in services prices, but Fed dovishness relative to previous cycles creates space for inflation expectations to increase again.

Global core inflation is expected to rise to 3% this year, marking the largest increase in over a quarter century.

Services price inflation remains a full percentage point below pre-crisis levels in most parts of the world, while the recent jump in core inflation appears to be driven by “one-offs” and highly concentrated in a small number of categories, including autos, lodging and airfare, which have rebounded toward pre-COVID-19 levels.

Supply bottlenecks, wage and other input price pressures remain.

5. Treasury yields will trend higher and the curve will steepen moderately as the Fed discusses tapering at every meeting and formally announces the process in December with two hikes now projected in 2023.

Tapering may be over faster than expected with the Fed tapering US Treasury (UST) and Mortgage-Backed Securities (MBS) purchases by $12 billion and $16 billion, respectively, per meeting, completing asset purchases by late summer 2022.

Faster-than-expected tapering will have an influence on yields with 10-year UST yields expected to move higher to 1.95% by year-end, but at a more deliberate pace than the outsized moves of 1Q21. 

6. Congressional approval of the bipartisan $1.2 trillion infrastructure package in July remains uncertain with odds of passage put at 50/50.

Biden and a bipartisan group of Senators announced a deal on a $1.2 trillion infrastructure package last week that includes $579 billion in new spending and 21st century infrastructure in transportation, water and broadband.

7. Oil prices are heading higher and projected to reach $76 per barrel (bbl) on the heels of demand recovery as well as OPEC+’s cautious and disciplined approach to keeping supply out of the market.

Oil prices are still likely to decisively break into the $80s in 4Q21 and exit at $83/bbl in 2022 with oil demand returning to pre-pandemic levels by next April/May.

8. The outlook for precious and industrial metals prices is more negative as China progresses with policy normalization.

China accounts for 55-60% of base metals end-use demand, and China’s credit cycle has peaked, supporting a bearish bias for base metals over the course of 2021.

Our fair value estimates for copper imply prices are more fairly valued around $9,000/tonne before moving lower to $7,550/tonne as demand growth slows.

We see Gold at $1,550/oz at year-end.

9. The Fed’s hawkish pivot is bullish for USD after an indecisive first half, and we continue to favor the us Dollar versus other reserve currencies.

US cyclical outperformance should drive real yields higher and support USD outperformance versus many lower-yielding peers, particularly the Japanese Yen and Euro.

10. US high grade credit spreads have reached our year-end target of 110 basis points, but the pain trade is likely tighter still.

Corporate credit fundamentals are healthy and credit quality is improving.

The authors would like to thank Mohammed Hossain and Alex Wise for their contribution to this report.

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