2021 Mid-Year
Market Update

Halfway through 2021, it’s clear that recovery from last year’s pandemic-induced recession is occurring at a faster pace than previous slowdowns. Thanks to broad vaccine distribution and considerable monetary and fiscal support from the federal government, the economy is opening up and the unemployment rate is dropping.

But even amidst the good news, questions remain. Will the rapid economic improvement ignite inflationary pressure? Will other economies follow the same trajectory as vaccine distribution goes global?  

Continuing Momentum Through Remainder
of The Year

To provide perspectives on what we might expect in the coming months, Bank of Oklahoma's investment management team recently
sat down to discuss key issues around the economy and financial markets, and share their insights into ongoing investment considerations.

Economic Outlook

Aggressive vaccine rollout, federal stimulus and policy support have the U.S. economic recovery well underway.

Markets

The S&P 500 is trending higher while energy equities and international markets offer promise in the latter half of the year.

While the labor market sluggishly improves, improving consumer demand is driving commodities higher signaling the return of inflationary pressure.

Theme 1

Economic Outlook

J. Brian Henderson, CFA
Executive Vice President, Chief Investment Officer

Economy Rebounding with Purpose

After a self-imposed shutdown due to the pandemic, the economic recovery is underway spurred by the federal government’s monetary and fiscal policy support.

  • Employment and economic growth are rebounding at a much faster rate than previous expansions.
  • Current inflationary pressures appear to be temporary and should normalize.

A Look Ahead

After a rapid expansion of the US economy, where will the economy go from here?

  • The main drivers of expected strong GDP growth are a reopening economy and financial strength of the US consumer.
  • Acceleration of vaccination trends around the world point to a delayed—but still significant—rebound later this year.
J. Brian Henderson, CFA
Executive Vice President, Chief Investment Officer
J. Brian Henderson, CFA
Executive Vice President, Chief Investment Officer

New Policy Directions

With the US economy recovering, the Federal Reserve and Biden Administration are pivoting to establish new policy directions.

  • The Fed will likely remain accommodative in regards to monetary policy and stay focused on reaching maximum employment and inflationary limits before taking action.
  • Fed’s $120 billion quantitative easing program could begin slowing early next year.
  • President Biden’s proposed increases on infrastructure, tax credits for childcare and clean energy could mean a higher tax burden.

Are Interest Rates Heading Higher?

Short-term rates are still at 0%, but longer-term rates have drifted higher; an improving economy could accelerate that.

  • The Fed recently accelerated the timeline for rate hikes due to inflationary pressures, but longer-term rates were already moving higher.
  • 10-year treasury could approach 2% by year-end, bringing home mortgage rates slightly higher as well.
Steve Wyett, CFA
Senior Vice President, Chief Investment Strategist
Matthew Stephani, CFA
President, Cavanal Hill Investment Management

Global Vaccination Progress

Operation Warp Speed produced four effective vaccines in less than a year, and the US is enjoying success at getting shots in arms.

  • It’s estimated that more than 70% of US adults 18+ have had the virus or at least one vaccine dose.
  • Europe lags the US by a few months and emerging markets are lagging Europe by a few months on vaccine rollouts.
  • This sets the stage for a recovery of the global economy starting with the US, and then extending to Europe in the summer and emerging markets in the fall and winter.
Theme 3

Markets

Equity Markets Rebounding Nicely

As COVID shut down the world, the market fell 34% from its February peak. Thanks to the fiscal and monetary stimulus, the S&P 500 is now 25% above its previous high.

  • Growth stocks were the first to recover thanks to the impact of lower interest rates and stellar balance sheets.
  • Value stocks were next in late fall and were expected to continue outperforming for the foreseeable future.
  • Overall, market gains are going to be hard to come by and investors shouldn’t expect double-digit returns.
Matthew Stephani, CFA
President, Cavanal Hill Investment Management
Matthew Stephani, CFA
President, Cavanal Hill Investment Management

Oil & Energy Accelerate

After a market share war at the front end of the pandemic led to an oversupply and price drop, the outlook is stabilizing.

  • Cooperation between OPEC and Russia regarding oil supply has brought prices back above $60 per barrel.
  • Energy equities are an area of opportunity with demand recovering and potentially hitting new highs in 2022.

International Markets Anticipate Recovery

Although a few months behind the US, recovery is coming to Europe later this year and to emerging markets a few months behind that.

  • After a rocky start, vaccine distribution is well underway in Europe which should lead to reopened markets and the return of tourism dollars in the coming months.
  • Emerging markets are earlier along in vaccine ramp up so slower to recover, but raw material availability keeps these markets attractive to investment.
Matthew Stephani, CFA
President, Cavanal Hill Investment Management

Inflationary Outlook

Steve Wyett
Senior Vice President, Chief Investment Strategist

Labor Demand Outpacing Supply

The pandemic inflicted considerable damage on the labor force which is still experiencing relatively higher unemployment and declines in participation.

  • Although there are 7.5 million fewer jobs in the US, job openings are at record levels.
  • Reasons why people aren’t getting back to work—from a lack of childcare to COVID-19 concerns—should resolve themselves in coming months, allowing the Fed to begin reducing monetary accommodation.

Commodities Surging with
Consumer Demand

Thanks to actions taken by the Fed and Congress, consumer demand is quickly rebounding bringing commodities higher.

  • The rise in personal incomes is spurring consumer spending on housing, autos and home improvements, driving prices on raw materials like lumber, steel and oil higher.
  • Due to their volatility, commodity prices shouldn’t be viewed as a harbinger of lasting inflationary pressure.
  • Growth rates will likely recede as the stimulus dries up, slowing demand and resulting in lower overall commodity prices.
Steve Wyett
Senior Vice President, Chief Investment Strategist

About the Experts

Brian Henderson Headshot, EVP Chief Investment Officer

J. Brian Henderson, CFA

Executive Vice President, Chief Investment Officer
More about Brian Henderson
chevron arrow to expand bio content
  • Leads Alternative Investments, Strategic Investment Advisors and Cavanal Hill Investment Management, Inc.
  • Recognized with multiple performance awards as President of Cavanal Hill prior to CIO appointment.
  • More than 25 years of experience with BOKF.
  • Holds a Bachelor of Business Administration from Southern Methodist University.
  • Supports various philanthropies throughout the Tulsa community.
Steve Wyett Headshot, SVP Chief Investment Strategist

Steve Wyett, CFA

Senior Vice President, Chief Investment Strategist
More about Steve Wyett
chevron arrow to expand bio content
  • Responsible for the creation, communication and implementation of BOKF’s investment management message.
  • Serves on the Alternative Asset and Manager Review Committees, is a member of the bank’s Internal Trust, Investment, and Advisory Trust Services Committees, and Managing Director and Chair of the Investment Committee for BOK Financial Private Wealth, Inc., a wholly-owned RIA.
  • More than 35 years of investment expertise.
  • Earned a Bachelor of Science in Finance from Oklahoma State University and is a member of multiple Societies of Financial Analysts.
Matt Stephani Headshot, President Cavinal Hill Investment Management

Matthew Stephani, CFA

President, Cavanal Hill Investment Management
More about Matthew Stephani
chevron arrow to expand bio content
  • Responsible for Cavanal Hill’s Fixed Income, Cash and Equity Management teams.
  • Previously led the award-winning Fundamental Equity Research team, where he developed new strategies and established a strong track record of performance.
  • Holds a Bachelor of Science and Master of Accountancy from Brigham Young University.

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