Jim Solloway, Chief Market Strategist and Senior Portfolio Manager in SEI’s Portfolio Strategies Group, provides our July 2021 economic outlook. 

It was full-steam ahead during the second quarter for both the global economic recovery and the worldwide rally in risk assets.

Equity markets have long anticipated the economic improvement we now are watching unfold. There is concern among market participants, however, that U.S. equity prices have little appreciation potential left, even if the global economy continues to forge ahead.

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Transcript

Hello, I’m Jim Solloway, Chief Market Strategist and Senior Portfolio Manager in SEI’s Portfolio Strategies Group. It was full-steam ahead during the second quarter for both the global economic recovery and the worldwide rally in risk assets.

Equity markets have long anticipated the economic improvement we now are watching unfold. There is concern among market participants, however, that U.S. equity prices have little appreciation potential left, even if the global economy continues to forge ahead.

We can’t rule out a choppier and more lackluster performance for U.S. stocks, given their strong outperformance since March 2009 and elevated valuations relative to much of the rest of the world.

But in today’s environment, with economies opening up and interest rates still at extraordinarily low levels, the dominant trend favors further price gains over the next year or two.

We anticipate that other advanced economies will record strong results in the second half of 2021 and into 2022, exceeding the U.S. pace of growth.


Economists correctly point out that the United States has employed direct fiscal measures (including emergency spending, income support and tax breaks) more aggressively than any other nation.

That noted, other countries have used different tactics that exceed the U.S. stimulus effort.

Several European nations and Japan have relied on equity injections, loans and guarantees. In the eurozone, some of these loan commitments have only just begun to flow. Italy and Spain are big beneficiaries of the eurozone’s €750 billion in loans and grants as part of the so-called NextGenerationEU program.

The European Central Bank also seems dedicated to maintaining its pandemic-related monetary support at least through March 2022.

The ECB’s balance sheet has risen more than 25 percentage points of GDP since the beginning of the COVID-19 crisis. That’s more than any other major central bank except the Bank of Japan, which saw a 30 percentage-point increase.

The ECB’s actions have succeeded in keeping peripheral Europe’s sovereign bond yields well behaved through the crisis period.


The world’s central banks are singing from the same hymnal when it comes to inflation. Although consumer prices have accelerated in many countries, central bank policymakers insist that it is a temporary event associated with the demand surge and supply-chain issues stemming from the re-opening of economies.

The U.S., the U.K. and Canada seem to be enduring a much sharper inflation spike than Japan or the eurozone. The last two are probably relieved to have a respite from the deflationary pressures that have been afflicting their economies for many years. There seems little reason for the ECB or the BOJ to join the Fed when it comes to discussing a near-term reduction in their asset purchases, much less raising their policy rates ahead of the U.S. 

In terms of potential challenges, COVID certainly sits at the top of the list. Yet, even as vaccination rates slow in the developed countries, more shots will be available for the rest of the world.

We expect a rolling reopening of the global economy that will extend well into 2022.

This wave of recovery could resemble an extended up-cycle that keeps the pressure on supply chains, leading to continued shortages of goods and labor. Fears that inflation will be more enduring than expected are likely to remain with us into next year.
Thank you.

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