# Too Good to Last? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-06-08 Category: TRADING Category URL: https://financedigest.com/category/trading Meta Title: Equity Markets Start June Positively Despite Weakest Month Meta Description: Read the latest insights from Rupert Thompson, the Chief Investment Officer at Kingswood, on the positive start to June in equity markets and the potential URL: https://financedigest.com/too-good-to-lasthtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/equity-markets-1736838296850-compressed.jpg) _By **Rupert Thompson,** Chief Investment Officer at Kingswood_ Equity markets have started June on a positive note and, so far at least, are ignoring the fact that June is traditionally the weakest month of the year. Global equities rose 0.7% in local currency terms last week and are now some 1% above their high a month ago. The good [performance has not been confined to equities](https://www.financedigest.com/equity-markets-show-strong-end-of-year-performance-in-camradatas-q4-2017-investment-research-reports.html "Equity Markets Show Strong End of Year Performance in CAMRADATA’s Q4 2017 Investment Research Reports"). Government [bonds remain becalmed despite the mounting worries](https://www.financedigest.com/german-bond-yields-rise-after-schnabel-fuels-inflation-worries.html "German bond yields rise after Schnabel fuels inflation worries") that economies are overheating. Indeed, 10-year US [Treasury yields](https://www.financedigest.com/stocks-jump-as-treasury-yields-ease-and-oil-prices-sell-off.html "Stocks jump as Treasury yields ease and oil prices sell off") are currently 1.6%, some 0.2% below their high at the end of March. Meanwhile, the additional yield offered by [corporate bonds](https://www.financedigest.com/green-bonds-are-set-to-drive-corporate-esg-debt-out-of-slump-in-2023-barclays.html "Green bonds are set to drive corporate ESG debt out of slump in 2023 -Barclays") over government bonds has fallen in both the US and UK to the lows touched in 2018. Prospective [returns continue to look higher for equities than bonds](https://www.financedigest.com/investors-seek-higher-returns-as-catastrophe-bond-issuance-slows-during-q2-according-to-aon-study.html "INVESTORS SEEK HIGHER RETURNS AS CATASTROPHE BOND ISSUANCE SLOWS DURING Q2, ACCORDING TO AON STUDY"), where return prospects remain very low. Even so, we believe equities face rather choppier waters [ahead with potential](https://www.financedigest.com/zara-owner-inditexs-first-half-sales-surge-ahead-of-potential-slowdown.html "Zara owner Inditex’s first-half sales surge ahead of potential slowdown") returns no longer that high. For starters, the strong [rebound in earnings](https://www.financedigest.com/ftse-100-rebounds-on-energy-earnings-lift.html "FTSE 100 rebounds on energy, earnings lift") has driven the market’s sizeable gains over the past year, but earnings growth will be slowing down again later this year. Equities will also very likely have to contend with renewed upward pressure on government [bond yields](https://www.financedigest.com/euro-zone-bond-yields-fall-as-ecb-policymaker-flags-recession-risk-gilts-eyed.html "Euro zone bond yields fall as ECB policymaker flags recession risk, gilts eyed"). Overheating worries may well get worse before they get better. US inflation surged in April and the May [data out this week should show a further rise](https://www.financedigest.com/dollar-slips-after-upbeat-china-data-euro-pound-rise.html "Dollar slips after upbeat China data; euro, pound rise"). The [Fed has been adamant that it will look through this surge](https://www.financedigest.com/fed-says-u-s-economic-recovery-on-track-despite-covid-19-surge.html "Fed says U.S. economic recovery on track despite COVID-19 surge"), believing it to be temporary, but recently a few doubts seem to be creeping in on this front. The problem is that the [data at the moment is so distorted by the pandemic and bottlenecks as economies re-open that it is difficult to know how transient this pick-up in inflation](https://www.financedigest.com/stocks-climb-yields-fall-with-dollar-on-inflation-data.html "Stocks climb, yields fall with dollar on inflation data") will be. The uncertainty is only increased by the unprecedented size of the monetary and fiscal stimulus. Still, some comfort can be drawn from much of the [recent sharp rise](https://www.financedigest.com/most-recent-development-report-on-centrifugal-chiller-market-to-witness-exponential-rise-in-revenue-share-during-the-forecast-period-2021-2031.html "Most Recent Development Report On Centrifugal Chiller Market To Witness Exponential Rise In Revenue Share During The Forecast Period (2021-2031)") being concentrated in a few categories. For example in the US, used [car prices](https://www.financedigest.com/upset-by-high-prices-gms-cruise-develops-its-own-chips-for-self-driving-cars.html "Upset by high prices, GM’s Cruise develops its own chips for self-driving cars") have soared. One-off factors, such as chip shortages hitting new [car supplies](https://www.financedigest.com/britains-car-output-drops-6-as-supply-woes-persist.html "Britain’s car output drops 6% as supply woes persist"), along with reluctance to use public transport due to Covid and the big stimulus cheques handed out earlier in the year, seem mostly to blame. That said, widespread labour shortages [seem now to be both limiting the recovery in employment and triggering wage hikes](https://www.financedigest.com/stocks-dip-yields-climb-as-rate-hikes-seem-to-stay-the-course.html "Stocks dip, yields climb as rate hikes seem to stay the course") both in the US and here in the UK. Again, it will be some time before it becomes clear whether this is temporary or not. Only when the Covid support measures come to an end over coming months, will we start to know how many of the recipients will re-enter the labour force, [easing these pressures](https://www.financedigest.com/analysis-china-central-bank-under-pressure-to-ease-is-hemmed-in-by-inflation-fed-jitters.html "Analysis-China central bank, under pressure to ease, is hemmed-in by inflation, Fed jitters"). While interest rates still look unlikely to be raised in the US, the UK and Eurozone before 2023 at the earliest, the [inflation news will give increased urgency to central bank](https://www.financedigest.com/governments-and-central-banks-risk-inflation-bank-of-england-has-done-its-bit-now-the-politicians-turn.html "Governments and central banks risk inflation, Bank of England has done its bit, now the politicians’ turn") discussions on when to start scaling back their QE programs. Coming months should see central banks [lay out their plans and this could be a source of some volatility as markets get to grips with the idea that the days of easy money are starting to come to an end](https://www.financedigest.com/amazon-to-lay-off-staff-in-u-s-canada-and-costa-rica-by-end-of-day.html "Amazon to lay off staff in U.S., Canada and Costa Rica by end of day"). Recent headlines, however, have all been about the G7’s upcoming shindig in Cornwall and, more importantly, their [plans to crack down on corporate tax](https://www.financedigest.com/uks-sunak-under-fire-over-cost-of-living-defends-his-tax-cut-plans.html "UK’s Sunak, under fire over cost of living, defends his tax cut plans") avoidance. Their plan is for a [minimum global corporate tax](https://www.financedigest.com/german-industry-calls-for-delay-to-global-minimum-tax-bdi.html "German industry calls for delay to global minimum tax – BDI") rate of at least 15% and for 20% of the profits of the largest and most profitable multinationals to be taxed on the basis of the location of their sales. The agreement still [needs to be ratified by the G20](https://www.financedigest.com/g20-summit-what-you-need-to-know-now.html "G20 Summit: What you need to know now") and the OECD and the devil will be in the detail. So, how big a hit to [corporate earnings it will represent is far from clear](https://www.financedigest.com/clearing-out-your-garage-benefiting-from-corporate-simplification-2.html "Clearing Out Your Garage – Benefiting from Corporate Simplification "). While the move undoubtedly represents a medium-term headwind for the most international sectors, such as technology, it is very much a side-show for [markets compared to developments](https://www.financedigest.com/concrete-placing-booms-market-notable-developments-geographical-outlook.html "Concrete Placing Booms Market: Notable Developments & Geographical Outlook") on the monetary and inflationary fronts. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---