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Q2 2021

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Key Takeaways, Second Quarter 2021

By Ralph Goldsticker, CFA | July 2021

Fueled by ongoing stimulus, the global economy is on a steady, if uneven, recovery path. Supported by economic growth as well as ongoing monetary and fiscal stimulus, global stock markets continued to rally.

In the second quarter, investors turned their attention to central banks’ response to the inflation spike triggered by both a rebound in demand (especially energy) and supply chain bottlenecks. In the US, labor supply disruptions are a concern as well. Investors and economists are taking the view that the recent burst in US inflation is transitory. As expected, the Federal Reserve held steady at the June FOMC meeting, however, its guidance for potential future rate hikes was interpreted as more hawkish compared to previous statements.



Stocks rallied as economies reopened and stimulus measures continued.

  • The broad US stock market gained 8.2%, bringing its YTD return to 15.1%, and 12-month return to 44.2%.

  • News about economic growth, both realized and expected, resulted in momentum swinging back to large US growth stocks. 

  • US growth stocks returned 8.2%, relative to 5.2% for value. Large caps outperformed small caps, 8.5% vs. 4.3%. Developed international and emerging markets lagged the US, gaining only 5.2% and 5.0%. 

  • For YTD and 1-year in the US, style segment returns were similar. US stocks outperformed international.

Fixed Income

Bonds gained as interest rates fell despite the jump in inflation and the Fed’s signaling that it expects to raise short-term interest rates sooner than previously anticipated. 

  • The yield curve flattened. Interest rates on shorter-term Treasuries were little changed, while rates on the 10- and 20-year bonds fell 25 and 31 bps, respectively. However, rates are still higher YTD, by 56 bps on the 10-year and 44 bps on the 20-year.

  • Given the ongoing recovery, credit and liquidity spreads continued to narrow. Investment grade spreads compressed 9 bps while high yield spreads fell 42 bps, 13 and 68 bps narrower than their pre-crisis levels.

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