Should We Take Cues from the Bond Market or the Equity Market?

Aug 6, 2021

July 2021 was quite interesting for the market, as it featured a micro-correction followed by a swift rebound in the second half of the month. First, restrictions in the U.S. were largely lifted, then came the excitement of doing what used to be normal, such as going to a restaurant or seeing a movie. In hindsight, perhaps we moved a bit too quickly to revert to our 2019 lives. As mobility increased, so too did the spread of the delta variant, especially among unvaccinated populations. Concern about delta and the subsequent tripling of COVID cases in the U.S. caused a brief risk-off trade.1 And with concerns of a third wave in the U.S. running high, the yield on the 10 year-Treasury fell from its peak in March from 1.75% to 1.18% in mid-July.

Perhaps the bond market saw what’s happening across the pond and thought the U.S was next. The Delta variant has the U.K. experiencing its third wave of COVID infections, though there are signs that cases have peaked. Domestically, rising Delta case counts could pose challenges to the reopening, at least regionally. The bond market is known for being more contemplative and forward-looking than its brasher sibling, the equity market. If the bond market is correct, the U.S. economy may face slower growth and inflation that isn’t so transitory. But as yields start to move higher again, including the 10-year Treasury now at 1.3% (as of 7/23/2021), we are in the camp that the bond market may have drawn a faulty conclusion.

On the positive side, we see some easing in the supply chain constraints that caused prices to jump to their highest levels since before the 2008 financial crisis.2 Freight costs remain stubbornly high, which affects smaller companies, the lifeblood of the economy, more than larger multinationals. However, we expect the Federal Reserve (Fed) to maintain its dovish stance for the foreseeable future.

Significantly, the consumer is healthy and strong. Now, consumer spending is starting to shift from goods to services as life returns to something more normal.3 We believe that as services spending rises, goods consumption could slow but remain at an elevated level. It was estimated that a 10% increase in time spent at home during the pandemic was a 3.1 percentage point headwind to consumer spending.4 This pivot should help ease supply disruptions and mitigate some inflationary pressures over the next few months.

Of course, tail risks now include the highly transmissible delta variant. Beyond mask advisements, we do not expect mandatory measures placed on the U.S. population, but even voluntary social distancing poses moderate downside to the economic outlook.

Sector Views

In the second half, we expect the market to focus more on valuations across sectors and become more selective. In that sense, perhaps the often-brash equity market is growing up.
Supply chains constraints are a particularly important consideration in the reopening economy, but numerous factors shape our current sector views.

Category: Articles

Topics: Macroeconomic, Sector Views

Investing involves risk, including the possible loss of principal. Narrowly focused investments may be subject to higher volatility. Technology-themed investments may be subject to rapid changes in technology, intense competition, rapid obsolescence of products and services, loss of intellectual property protections, evolving industry standards and frequent new product productions, and changes in business cycles and government regulation.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the funds. Brokerage commissions will reduce returns.

Carefully consider the funds’ investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the funds’ summary or full prospectus, which may be obtained by calling 888-493-8631 or by visiting Please read the prospectus carefully before investing.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is not intended to be individual or personalized investment or tax advice and should not be used for trading purposes. Please consult a financial advisor or tax professional for more information regarding your investment and/or tax situation.

Global X Management Company LLC serves as an advisor to the Global X Funds. The Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Global X Management Company LLC.