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Invest in a richer life,
however you define it.

This document has been prepared by Quintet Private Bank (Europe) S.A. The statements and views expressed in this document based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of 25 May 2021 and are subject to change. This information is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information. This document is of a general nature and does not constitute legal, accounting, tax or investment advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down.


Copyright © Quintet Private Bank (Europe) S.A. 2021.
All rights reserved. Privacy Statement

Counterpoint June 2021

WE TAKE TIME TO LISTEN

Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

TRADE Geopolitical tensions (ongoing)

MACRO Input shortages (ongoing)

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MACRO 
Reopening plans

FISCAL EU
recovery fund (Q3)

MONETARY Global central banks (ongoing)

FISCAL US infrastructure spending (H2)

MEDICAL Covid-19 vaccine (ongoing)

New image (copy)

MACRO Inflation and bond yields (ongoing)

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The first-quarter earnings season has been much better than expected, with almost all regions and sectors beating consensus earnings and sales forecasts. These results confirm our view that business conditions around the world are healthy and that elevated company valuations are justified by their potential to continue to grow their profits.

Markets have reacted positively in more cyclical sectors – especially financials – but strong results in technology have not been rewarded. This is a sign that the market remains in rotation mode for now as it shifts from rerating Covid winners to recovering Covid losers.

Looking ahead, as the global economic healing process continues and pent-up demand is released, we continue to find equities more attractive than bonds. As a result, we’ve recently increased our exposure to global equities across portfolios.

Quintet portfolio

Higher earnings forecasts

Company profits have been strong and the outlook remains positive as the recovery gathers momentum across the world

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EQUITIES
FIXED INCOME
ALTERNATIVES
FX
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0.0
-4.0
0.0
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Click an asset class to show the sub-asset classes

The asset allocation vector

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We don’t expect the Fed or any other major central banks to hike interest rates for at least a couple of years

New Covid-19 infections continue to fall across the developed world. Although there are concerns about new waves as lockdowns ease, the latest projections from the major health agencies are reassuring. More widespread vaccine rollouts and higher temperatures this summer should help. Europe is at last catching up and now vaccinating more people than the US each day – which is encountering some resistance from certain sections of the population.

The global economic recovery is following the pattern of the pandemic. At the head of the pack, the US is leading the rebound, closely followed by the UK, which has just relaxed its restrictions further. Europe is also beginning to transition to the other side of the health crisis. Pent-up consumer demand is coming through more strongly than expected, probably because it’s been boosted by stimulus policies, and we’ve increased our growth forecasts once again.

President Biden is proposing to almost double the capital gains tax (CGT) rate to 39.6% as a way to finance his USD 4 trillion stimulus package. It would put the US towards the top of the range across advanced economies. Republicans and some Democrats are concerned that it could make American businesses less competitive and turn away investors. CGT hikes have weakened stock markets in the past, but any sell-off tends to be temporary.

Top chart

Taxing capital

US President Biden plans to raise the capital gains tax rate to pay for part of the US stimulus package

icon

Source: Quintet, PwC (includes state/local changes, effective rates vary)

Average = 28%

Bill Street
Group Chief Investment Officer

autograph

With much of the developed world on the verge of a synchronised acceleration in growth, economists are turning to history for an idea of what to expect. The record suggests that after periods of non-financial disruption, such as wars and pandemics, GDP bounces back strongly – and that’s exactly what’s started to happen. It’s just one of the reasons why we’re optimistic about the long-term outlook for stock markets. We’ll soon be publishing our mid-year outlook, which sets out our views in more detail.

You might also be interested to read the latest article in our Richer Life series, which explores what we can do to protect ourselves online, with advice from lawyer Magnus Boyd, and digital anthropologist Rahaf Harfoush. The pandemic has accelerated many trends that were already under way, including turbocharging the growth of the internet. New digital technologies have made many aspects of life more convenient but they also raise questions about confidentiality.

Bill street image

Most of the world is moving to the other side of the pandemic. History suggests there will be a strong rebound

Lessons from the past

Welcome

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COUNTERPOINT JUNE 2021

On the other side

The recovery is taking place as we expected. The pace of growth and inflation is picking up as lockdowns measures relax

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COUNTERPOINT JUNE 2021

On the other side

Logo

The recovery is taking place as we expected. The pace of growth and inflation is picking up as lockdowns measures relax

With much of the developed world on the verge of a synchronised acceleration in growth, economists are turning to history for an idea of what to expect. The record suggests that after periods of non-financial disruption, such as wars and pandemics, GDP bounces back strongly – and that’s exactly what’s started to happen. It’s just one of the reasons why we’re optimistic about the long-term outlook for stock markets. We’ll soon be publishing our mid-year outlook, which sets out our views in more detail.

You might also be interested to read the latest article in our Richer Life series, which explores what we can do to protect ourselves online, with advice from lawyer Magnus Boyd, and digital anthropologist Rahaf Harfoush. The pandemic has accelerated many trends that were already under way, including turbocharging the growth of the internet. New digital technologies have made many aspects of life more convenient but they also raise questions about confidentiality.

President Biden is proposing to almost double the capital gains tax (CGT) rate to 39.6% as a way to finance his USD 4 trillion stimulus package. It would put the US towards the top of the range across advanced economies. Republicans and some Democrats are concerned that it could make American businesses less competitive and turn away investors. CGT hikes have weakened stock markets in the past, but any sell-off tends to be temporary.

middle_banner_mobile.jpg

New Covid-19 infections continue to fall across the developed world. Although there are concerns about new waves as lockdowns ease, the latest projections from the major health agencies are reassuring. More widespread vaccine rollouts and higher temperatures this summer should help. Europe is at last catching up and now vaccinating more people than the US each day – which is encountering some resistance from certain sections of the population.

The global economic recovery is following the pattern of the pandemic. At the head of the pack, the US is leading the rebound, closely followed by the UK, which has just relaxed its restrictions further. Europe is also beginning to transition to the other side of the health crisis. Pent-up consumer demand is coming through more strongly than expected, probably because it’s been boosted by stimulus policies, and we’ve increased our growth forecasts once again.

New image

We don’t expect the Fed or any other major central banks to hike interest rates for at least a couple of years

Looking up

We’ve also increased our forecasts for US inflation, although continue to believe it will start to fall back down towards the US Federal Reserve’s target later this year. Supply bottlenecks and shortages as demand rebounds and rising commodity prices are producing a temporary spike. Notably, we see no evidence that wages will spiral higher, which is something that’s typically associated with a protracted period of higher inflation.

We don’t expect the Fed or any other major central banks to hike interest rates for at least a couple of years. However, over the next few months the central bank could announce that it will looking to taper its asset purchase programme – a process that’s likely to start in 2022. We forecast bond yields to rise gently, led by the US, curves to steepen slightly, and the US dollar and sterling to appreciate against the euro.


The first-quarter earnings season has been much better than expected, with almost all regions and sectors beating consensus earnings and sales forecasts. These results confirm our view that business conditions around the world are healthy and that elevated company valuations are justified by their potential to continue to grow their profits.

Markets have reacted positively in more cyclical sectors – especially financials – but strong results in technology have not been rewarded. This is a sign that the market remains in rotation mode for now as it shifts from rerating Covid winners to recovering Covid losers.

Looking ahead, as the global economic healing process continues and pent-up demand is released, we continue to find equities more attractive than bonds. As a result, we’ve recently increased our exposure to global equities across portfolios.

logo

Invest in a richer life,
however you define it.

This document has been prepared by Quintet Private Bank (Europe) S.A. The statements and views expressed in this document based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of 25 May 2021 and are subject to change. This information is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information. This document is of a general nature and does not constitute legal, accounting, tax or investment advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down.


Copyright © Quintet Private Bank (Europe) S.A. 2021.
All rights reserved. Privacy Statement

updated_label.png
AAT new - Start

Welcome

Lessons from the past

icon

Most of the world is moving to the other side of the pandemic. History suggests there will be a strong rebound

Bill street image autograph

Bill Street
Group Chief Investment Officer

icon

Top chart

Taxing capital

US President Biden plans to raise the capital gains tax rate to pay for part of the US stimulus package

Source: Quintet, PwC (includes state/local changes, effective rates vary)

Swipe to see the full graph

mobile-chart
icon

Investment focus

A turning point

As the pandemic recedes, the economic recovery across the developed world is gathering steam

icon

Quintet portfolio

Higher earnings forecasts

Company profits have been strong and the outlook remains positive as the recovery gathers momentum across the world

icon

Monitor

WHAT TO LOOK
OUT FOR

While the global health crisis remains a key issue, Covid-19 vaccination programmes are accelerating, reopening is happening, policy easing continues, and inflation and bond yields are rising

Outlook is more certain than last month

down.png (copy)

Outlook is less certain than last month

down.png

Counterpoint June 2021

WE TAKE TIME TO LISTEN

Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

Click an asset class to show the sub-asset classes

The asset allocation vector

updated_label.png (copy)

More on our views

When we increase the allocation to one asset class in portfolios, we have to decrease the allocation to another. That’s why our tactical asset allocation (TAA) decisions come in pairs, where we underweight and overweight relative to our strategic asset allocation (SAA) weightings. The specific numerical weights from the chart relate to a EUR balanced portfolio and can be adjusted for different profiles.

US equities / US investment grade bonds
Given our positive outlook, we believe US stocks can outperform low-yielding US investment grade bonds at this stage of the business cycle.

UK small cap / Global equities
UK small caps lagged in the recovery and valuations are more attractive than for global equities, while its cyclical sector composition is supportive as growth recovers.

Asian high yield bonds / US investment grade bonds
Asian high yield bonds offer significant additional yield over US investment grade bonds, and default risks are well compensated for.

Asian high yield bonds / European government bonds
As the business cycle progresses supportive factors for equities stay in place, including growth in global corporate earnings, market momentum and  monetary and fiscal support.

Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers additional yield over US investment grade bonds. A weaker US dollar and rising oil prices would be likely drivers of tighter spreads.

US Treasuries / Eurozone government bonds
We have higher conviction in US Treasuries as a diversifier than in European government bonds thanks to their higher yield to maturity and better credit quality.

US Investment grade bonds  / Eurozone government bonds
The rise in USD yields makes currency-hedged USD bonds better value than European government bonds for EUR-based investors.

up.png (copy1)

MACRO 
Reopening plans

FISCAL EU
recovery fund (Q3)

FISCAL US
infrastructure spending (H2)

MONETARY
Global central banks (ongoing)

MEDICAL
Covid-19 vaccine (ongoing)

New image (copy)

MACRO
Inflation and bond yields (ongoing)

New image (copy)

TRADE
Geopolitical tensions (ongoing)

MACRO
Input shortages (ongoing)

New image (copy)
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Seeing the world differently

Quintet’s Chief Investment Office share their views on the economy, markets and investing in our monthly Counterpoint publication.
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