Q2 Equity Outlook: Equities Continue on Recovery Rally

We hope you found value in our quarterly video update on market and economic topics. This article builds on that recorded conversation with Johnson Financial Group’s Jason Herried and Eric Trousil.

Let’s pause a moment to reflect on how far we’ve come over the last year in financial markets. A year ago, the COVID-19 virus was spreading across the globe, significant portions of the economy were shutting down and financial markets reacted with a precipitous decline to reflect the associated risks. Today we are solidly on the road to recovery.

  • Equities are off to a strong start in 2021, and the backdrop remains favorable. The economy is on the cusp of a rapid recovery that may lead to GDP growth of 6-8%.
  • Economic data has been better than expected and consumer and business sentiment have improved.
  • As the growth outlook has improved, inflation expectations and interest rates have also increased.
  • The changing outlook for growth, inflation and interest rates have also been highly influential to equity markets through higher prices and a change in leadership.


As detailed in [Exhibit 1], the S&P 500 Index climbed 6% during the first quarter in the context of an improved outlook for the economy and profits. Even more impressive than the first quarter return is the 75% gain since the March 23 market bottom, which is far better than we dared to imagine at the time.

Also evident is the rotation in leadership from growth to value. Returns for the growth style increased 38% in 2020 compared to 3% for the value style. Over the past six months, however, the value style has returned 29% compared to 12% for the growth style.