August 2021 Outlook — Storm Clouds Brewing

Photo taken by Nathan Anderson

With the spread of the Delta variant of the COVID-19 virus, higher inflation readings in the US, and recent governmental actions by the CCP, there’s a great deal of uncertainty in the world, and it’s coming from different places. The data I analyze isn’t giving many strong insights into where to position portfolios. That being said, I slightly favor US over both International Developed Markets (EAFE) and Emerging Markets (EM) for the time being.

In comparison to EAFE, yields in the US offer a slightly higher risk premium. With respect to EM, countries in this sector seem to have had their growth more impacted by the Delta variant than the US. Time will tell if this impact to growth will persist. For both international sectors, recent weakening in the US dollar is also a headwind.

Finally, within the US, I strongly favor growth over value. The main reason for this belief is that inflation is running hot and I believe it won’t remain at these elevated levels for long. If inflation does slow down, I believe the value sector is more at risk of greater correction than the growth sector is. This is not to say believe inflation is transient — rather, I believe it will find a more stable value in the coming months. A stable but above-average inflation rate tends to favor value, but inflation stabilizes, I continue to favor growth.