Capital Markets Outlook: 4Q:2021

What You Need to Know

The strong economic and market trends of the first half of 2021 wavered during the third quarter. The coronavirus delta variant caught up with the US at the height of the summer, just as vaccinations slowed and concerns grew that inflation might flare and persist. Even so, equity markets fared well until September. The quarter-end saw fault lines exposed in China’s real estate market, increased worries over inflation and a more definitive lean toward potential tapering by the Fed in November. We still expect strong global GDP growth this year, moderating in 2022, but cautions remain. For equity investors, quality is the watchword. And within taxable and municipal fixed income, credit makes sense.


The recovery continues, although September saw markets pull back from their August highs. We’ve revised our growth forecasts slightly lower, expecting the global economy to grow by 5.9% this year and 4.2% in 2022. Both forecasts remain well above the precrisis trend of 3.0%.

But the skew of risks around global growth has shifted markedly in recent months, from widespread optimism and upside risks to a more sober assessment of the outlook. China’s property market, the US debt ceiling and soaring energy prices in Europe all cloud the outlook. We’re also concerned that supply-side dislocations stemming from the coronavirus could be more pervasive and persistent than expected.

Of particular concern is the specter of a more challenging growth/inflation mix and a less certain outlook for monetary policy—one in which the only choices available to central banks are hard ones. The Fed is key. As we enter the fourth quarter, we share the view that inflation is likely to fall back next year. But upward pressure on prices has already been less transitory than expected, hinting at a more fundamental shift in inflation dynamics.