Dear Friends,
Equity markets have delivered excellent performance in the first eight months of this year as earnings and economic data continue to show signs of a strong recovery in the US. The S&P 500 followed up a solid Q1 performance of +7.47% with an even stronger Q2 performance of +8.02% as domestic equities continue to ride the wave of low rates and investor confidence.
With that being said, the strong index performance this year has masked the challenging investing environment caused by aggressive sector and factor rotation. Up until October of 2020, Growth companies had seen nearly a decade of consistent outperformance over their Value counterparts. There has been some back and forth (particularly lately) however, in the past nine months, Value has reversed the trend on the back of the Global economic recovery and projections of future rate increases. We will need to watch whether the Delta Variant changes this.
This trend of Value outperformance may continue for the next 6-12 months, which lines up with projections of several large Investment firms such as JP Morgan Chase, Van Eck, and Goldman Sachs. A good way to think of it is that “we rent value, but we own growth.” We have also begun to tilt into European markets as there are similar reopening plays in Europe as we saw in the US several months ago.
One theme we are also watching in Europe (and globally) is the growing push for ESG (Environmental, Social, Governance investing). Companies who adopt ESG guidelines (such as zero net emissions) have received a ton of attention from investors, especially in Europe, where Climate Change is generally taken more seriously. According to Goldman Sachs, European equities make up approximately 30% of all ESG funds, despite only making up 17% of the global market cap. This will be another interesting trend to watch, again Favoring European companies.
If you have any questions, feel free to reach out.
Debbie
“Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.”
“S & P 500 Index: The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.”
