Global markets treaded water during the third quarter ending on Sept 30th, with leadership shifting to oil and other industrial commodities due to persistent supply chain disruptions. Bonds delivered negative total returns, as yields rose sharply at the end of September as the bond market projected an improvement to the growth outlook and a gradual tightening of monetary policy by central banks to combat rising inflation. Hardest hit were equities and bonds of the Emerging Markets, which were buffeted by multiple headwinds, including penalties against Chinese tech giants as President Xi pursues “the common prosperity,” wobbles in the Chinese property market, a resurgence in COVID cases due to slower vaccine rollouts, and rising food and energy costs. We would liken this period to a bit of turbulence from some crosswinds as the plane takes off that will end once we’re at cruising altitude.

We enter the final months of 2021 with a cautiously optimistic outlook for the end of the year and the start of 2022. Global stocks sit on healthy gains for the year, with continuing momentum from a massive earnings recovery and robust economic conditions. While valuations remain elevated, they have come off the late 2020 highs as earnings growth has driven the bulk of the returns this year – a very healthy sign. Global financial conditions remain accommodative of future growth, though we are seeing some tightening at the margin in an effort to tamp down inflation. While growth may moderate in the years ahead as stimulus recedes, so will the drag from COVID-19 as global vaccination rates rise and it fades from pandemic to endemic. The IMF recently published their growth forecasts for 2021 and 2022, which sit at a very healthy 5.9% and 4.9%, respectively. Global consumers and corporations alike have proven themselves very resilient in the face of such a challenging backdrop, which supports this steady trajectory of growth.

Naturally, risks remain, with little wiggle room offered by above-average valuations across virtually every asset class, including real estate, stocks, bonds, and, most recently, commodities. Highest on the list of risks we are monitoring is another wave of COVID-19, but rising inflation, tensions between China and Taiwan, and supply chain disruptions are not far behind. As always, we remain equal parts vigilant and opportunistic, and laser-focused on making the best of the market environment now and in the years to come.

(Source: https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021)

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