Stock Market An employee views trading screens at the offices of Panmure Gordon and Co

An employee views trading screens at the offices of Panmure Gordon and Co

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  • Markets have experienced a number of once-in-a-decade events in the first half of this year.
  • Many major banks and asset managers have released their mid-year outlooks for what could happen next.
  • We asked strategists from 5 leading institutions to outline the most compelling graphs from their outlooks.
  • See more stories on Insider’s business page.

It’s only been seven months into the year and markets have already witnessed a multitude of once-in-a-decade events.

Retail traders flocked to no-fee brokerage apps and coordinated short squeezes against well-known hedge funds, while the US stock market has continually reached new all-time highs.

The S&P 500 and NASDAQ are up 15% and 11% year-to-date respectively.

Cryptocurrencies also hit record highs, with bitcoin reaching around $64,800 only to then lose half its value in a matter of weeks afterwards. Bitcoin (BTC) currently trades around $31,800.

And value investors that waited years to witness rotation back to more cyclical stocks got little more than a brief taste of that at the start of the year before flows reversed back into growth stocks. 

On the economic front, there’s been major supply-chain and labor shortages that have seen inflation run at a 13-year high in the US and a 3-year high in the UK.

Considering so much has happened in the first half of the year, investors are left wondering what’s left to happen in markets over the second half of this year.

Many major investment banks and asset managers have released their mid-year outlooks to outline their expectations for the second half of the year.

The outlooks provide insight into how the firm’s are thinking about major topics, such as will the equity markets go higher or stay flat, or whether bond yields will continue to march higher and, of course, when the

Federal Reserve
might start tapering.

Sometimes the outlooks come to loggerheads as shown by the differences between JPMorgan Asset Management’s and Goldman Sachs’ outlook on equities. However, diving deep into a variety of outlooks can help investors prepare for what’s ahead.

“We think equity markets go higher over the rest of the year, and over the next 18 months in particular,” said JPMorgan Asset Management’s global market strategist Michael Bell, describing the firm’s outlook. ” … Things may get a little bit choppier as well, as we don’t think that the discussion around tighter monetary policy is going to go away.”

“From a valuation perspective, equities during the next six months are more likely to experience multiple contraction than expansion,” Goldman Sachs analyst David Kostin said in a July 2 chartbook that looks back at the first half of the year as well as how to play the second half.

Insider asked five leading investment banks and asset managers to share their most compelling graphs from their mid-year outlooks to help investors navigate the markets the rest of the year.

Here are their top picks:

Stock Market 13 must-see charts 

Stock Market 1. A temporary COVID adaptation leads to a more permanent economic change

Stock Market Graph of US GDP vs US employment from Citi Private Bank 2021 mid-year outlook Graph of US GDP vs US employment from Citi Private Bank’s 2021 mid-year outlook

Citi Private Bank


real GDP
has fallen less than 1% since the onset of COVID while employment has dropped 4.4%, said Citi Private Bank’s global investment strategist, Steven Wieting.  This is an unusually strong divergence even for a

/recovery period, he added.

COVID has hit labor-intensive industries, such as hospitality, much harder than others. These sectors have a low GDP weight but employ many, Wieting said.

However, this is not the only reason for the gap, Wieting said. The bank believes that learned adaptions to COVID has also shifted the economy and will  change the economy permanently.

“Remote work and greater penetration of digital commerce has lifted the economy’s output per worker,” Wieting said. “Businesses are unlikely to take actions that will reverse those gains.”

According to Wieting, the investment implications are:

  1. Commercial real estate may see a more limited recovery than seen in single-family housing. 
  2. E-commerce and digital services will sustain a larger share of the economy than in the pre-COVID period and still grow beyond.

Stock Market 2. The rise in inflation isn’t global

Stock Market Graph comparing US, Japan and Eurozone CPIs from Charles Schwab mid-year outlook Graph comparing US, Japan and Eurozone CPIs from Charles Schwab’s 2021 mid-year outlook

Charles Schwab

The chart highlights the rise in inflation has not been global, Charles Schwab’s chief global investment strategist Jeffrey Kleintop said.

The European Central Bank and Bank of Japan are not under the same pressure to rein in stimulus as the Federal Reserve, he said.

“That could mean that strong economic data in the US, especially on jobs, could be un-welcomed by markets, since it may mean the Fed moves more rapidly than anticipated,” Kleintop said. “But good economic news overseas may remain positive for stocks outside the US.” 

Stock Market 3. The Federal Reserve still has work to do to make up for past inflation shortfalls

Stock Market Graph of average Federal Reserve inflation projections vs average make-up, 2015-2023 from BlackRock mid-year outlook Graph of average Federal Reserve inflation projections vs average make-up, 2015-2023 from BlackRock’s 2021 mid-year outlook


“This chart shows how much work the US Federal Reserve has to do to achieve its new goal of letting inflation run above target to make up for past shortfalls,” Jean Boivin, head of the BlackRock Investment Institute, said. “The shaded region shows how high the Fed would need to let average inflation run over the next two years to make up for previous shortfalls. This level of inflation is higher than even recent-decade highs reflected in market pricing.”

Stock Market 4. The success and failures of “mean reversion strategies”

Stock Market Graphs from Citi Private Bank's 2021 mid-year outlook Comparison graphs of SMID US banks vs Fintech and Energy vs Alt Energy from Citi Private Bank’s 2021 mid-year outlook

Citi Private Bank

Since April 2020, Citi Private Bank has said its asset allocation and discretionary portfolios have a “pro-cyclical bias”.

This means unwinding positions in assets that have priced in recovery most aggressively, Citi Private Bank’s global investment strategist Steven Wieting said. 

“As an example, we began an overweight in US small cap stocks in April 2020, and went underweight in April 2021,” Wieting said. “We’ve used the funds to reinvest in global healthcare where we see stronger growth and less risk.”

One of Citi Global Wealth’s investment themes for 2021 is “mean reversion”, which is a financial theory that suggests historical returns eventually will revert to the asset’s long-term average level.

The bank has found that “mean reversion strategies” only work in the first year of economic recoveries. During the remainder of expansions, firms and industries that outgrow the economy perform best, Wieting said,

To-date, the theme has worked well for Citi, Wieting said, with the hardest-hit industries of 2020 have rallying the most. 

“The two charts show that ‘mean reversion’ in 2021 doesn’t erase the long-run outperformance of the industries that are posing a technological challenge to incumbents,” Wieting said. “As the recovery progresses, ‘COVID-driven dispersion’ is likely to linger. While there are still some ‘pure recovery’ opportunities in global markets, sustained growth opportunities are beginning to stand out again.” 

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