UK Capital Market Assumptions and Summary: July 2021
Jul 28, 2021 2:14:51 PM
Each quarter, we use our market-proven global stochastic asset model to generate a range of capital market assumptions based on the latest market data.
Below we provide a brief market summary. A download link to the full report is also available.
Quarter 2 2021 Market Summary
It was a good quarter for both equities and bonds. It started with the same optimism as in the wider world and for the same reasons but bond markets finishing shows a more jaundiced outlook by the end. Good news for the world can be a mixed blessing for markets. In particular, good news for the economy is usually bad news for bondholders. Higher bond prices mean expectations of how far or how fast rates will rise have fallen and the rest of the market is not attractive enough to lure bond investors away.
With mild perversity this change of mood crystallised with the Federal Reserve suggesting that rates might be lifted sooner than they had previously suggested. But sooner means 2023 and the suggestion was interpreted as the Fed is ahead of the curve and rates have been falling since.
US markets benefitted from a late surge following the meeting on the 15th of June saw the US equities finish top for the quarter and it’s now the best-performing market since the pandemic began.
European and UK markets had been keeping the pace up until then as markets recovered confidence in Western stocks. However, the recovery was not enough to make much impact on the UK’s position as the worst-hit market over the course of the pandemic.
Asian markets had less recovering to do but only Japan lagged. Japan’s dull performance is not out of line with economic news and the threat of the Olympics to Japan’s success but not easily explained COVID response.
The UK and US both experienced a bond rally. Those markets started the quarter quite steadily but began a serious rally from the May meeting of the Federal Reserve where high recent inflation rates in the US were declared ”transitory”. US rates fell further on the announcement in June that short term US rates could be raised as soon as 2023 which provided some perspective on where central bankers think the threats are and were enough to provide effective reassurance that inflation was not going to get out of hand. European and Japanese bond markets followed the same pattern but at a much smaller scale.
As might be expected from equity and government bond markets, corporate bonds did well on both rates and credit as investors continued to seek higher yields.
Commercial property, which has had uphill challenges since the COVID breakout, edged ahead.
The pound’s resurgence has clearly come to an end and was down against both the Euro and after the June Federal Reserve meeting, against the US Dollar.
To read more about markets, economy and outlook, please download the full report.
For risk-rated multi-asset portfolios, both the level and variability of returns are critically important. Getting the asset allocation right is the key driver of both. So much so that 90% of investment returns are dependent on getting the asset allocation right.
Our optimised strategic multi-asset allocations are grounded in a set of robust and academically tested investment beliefs. Our asset model has delivered consistent and market-resilient asset allocations to our clients for over a decade. This resilience was evident during the Global Financial Crisis, and during the market dislocation experienced during 2020. We believe that this is a strong validation of our model and track record.