Equities have remained buoyant over the past weeks despite some challenges (China regulation, Afghanistan crisis), primarily due to the exceptional earnings seasons in the US and Europe. Looking ahead, we identify three main themes: the spread of the Delta Covid variant, the deceleration of economic growth from its peak, and divergences in policies.
On the first D, Delta, the resurgence of Covid-19 cases in the US and Europe has been a key topic, with the return of the so-called lockdown trades penalising travel and leisure stocks and favouring more defensive companies. We believe that the market has probably gone a bit too far with regard to pricing in the potential for new lockdowns. This may have opened up opportunities in the most affected sectors.
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