Q3 | 2021

Market Intelligence

The rapid reopen

Read more on the drivers that are affecting equities and fixed income.

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Capital Markets Strategy Team

Manulife Investment Management’s outlook snapshot


The US economy and others around the world continue to recover at a gradual pace, supported by economic reopening and distribution of the COVID-19 vaccine. Excess savings and pent-up demand are expected to result in stronger consumption through 2021. We believe the bifurcation of the recovery ends as the services sector catches up to the manufacturing (equity-centric) recovery. In this environment, we should expect market returns to be average to below average over the next couple of years, with risk to the upside.
— The Capital Markets Strategy team
Canadian Equities
U.S. Equities
Developed Markets
Emerging Markets
Developed Markets Sovereigns
Corporate Credit

Canadian Equities:

The future is looking brighter. 

Our outlook for the S&P/TSX Composite Index remains positive. The demand for commodities, including oil, and their respective prices will likely continue to increase as the global economic recovery takes hold.

  • Where commodities go, the S&P/TSX usually follows.

    The S&P/TSX Composite Index has often been referred to as a commodity‑linked index given that two of its largest sectors are commodities and energy. As the global economy continues to recover from COVID‑19 and government‑forced lockdowns, the demand for commodities is expected to continue increasing. The increased demand should bode well for S&P/TSX returns.

  • Improving oil prices should lead to a better earnings environment.

    Historically, earnings for the TSX has correlated with the change in the price of crude YOY. We believe the global economic recovery will lead to higher crude demand and prices, contributing to higher S&P/TSX earnings growth.

  • Canadian equity valuation is attractive in key sectors.

    Financials is one of the sectors that is trading at attractive valuations relative to the last 15 years. A rapid reopening and a steeper yield curve would benefit earnings in this sector, while valuation would suggest the risks lean to the upside.

  • Dividend growers outperform.

    Our team screened the S&P/TSX Composite Index for companies with a five‑year dividend growth rate of at least 10% and a payout ratio of no more than 70%.  The model has a 10‑year annualized performance of 7.65%, while the S&P/TSX Composite Index returned 4.92% over the same period. These results assume all dividends are paid out and not reinvested.

U.S. Equities:

Continuing the march forward.


The economy is on the path to recovery and will be led by pent-up demand and elevated levels of savings.

  • Corrections are normal.

    Stock market corrections are very common and very difficult to predict. Since 1980,
    the S&P 500 index has fallen
    an average of 14.3% in any given calendar year but is positive 78% of the time with
    an average return of 10.3% 

  • The earnings outlook is improving.

    As we look forward, we’re starting to see signs that the global economy may have bottomed and has shifted from contraction to recovery. Since the month of August, the U.S. ISM purchasing managers’ index (PMI) shows that manufacturing activity has increased materially on a month‑over‑month basis. 

  • Earnings growth is likely to ease any valuation pressure.

    Macro indicators would suggest 2021 will see a strong earnings growth environment that may include not only a recovery back to 2019 levels, but even stronger growth given the release of pent‑up demand and excess personal savings. 

  • Momentum begets momentum.

    Equity markets often follow Newton’s First Law of Motion; “an object in motion, remains in motion”. Historically, when the S&P 500 Index is up over 20% in a six-month period, there is a 48.6% chance that it will be up more than 10% in the following six months. This is a 10% higher probability than the chance it will be up over 10% in any six-month period.

International Equities:

Emerging markets are likely to lead the way.


While Europe continues to face challenges with increased COVID-19 cases, new lockdowns and potential hangover effect from the Brexit deal, emerging markets (led by Asia) continue to improve. Economic growth and earnings momentum seem to be stronger in China, Korea, and Taiwan than elsewhere in the world.

  • China is leading the way in the global trade recovery.

    On a year‑over‑year basis, global exports for the five largest exporters in the world look to be improving, with China leading the way. The global trade outlook for 2021 is the strongest in two years. Improved YOY export growth in China and South Korea should be shared by the United States, Japan, and Germany through 2021.

  • Asia equities may benefit from stronger economic growth.

    In their April World Economic Outlook, the International Monetary Fund projects that many regions around the world, especially emerging and developing Asia, could grow faster than the U.S. in 2021 and 2022. The improving economic outlook should benefit all regions lead by the emerging markets.

  • Copper prices are supportive of an accelerating Chinese economy.

    As China is the largest importer of copper, an increase in the price of copper is usually tied to an increase in demand from China. Despite the recent slow down in year over year growth in the price of copper, the current level remains supportive of economic growth in China.

  • Emerging market equities look attractive in 2021.

    Emerging market equities enjoy their best performance in an accelerating growth and inflation environment. While lagging their developed market peers, we believe emerging market equities have the potential to outperform into 2022.

Fixed Income

Flexibility is required.


Exceptionally low interest rates are likely to remain around the world and across the curve spectrum in the near term. However, the Fed’s monetary inflation coupled with the trillions in fiscal stimulus by the U.S. federal government, has resulted in a steeper yield curve. In this environment, we believe credit does well and short duration bonds outperform longer duration. Credit defaults will continue through the recovery as some companies will still fall victim to the impact of the COVID-19 lock downs. In this regard, security selection and careful credit analysis is of paramount importance.

  • An increase in yields around the world won’t help income-focused investors.

    Although global sovereign bond yields may have bottomed and have started to increase in some areas, they won’t be going back to their long‑term averages in the near term. In addition, approximately $18 trillion USD of global bonds have a negative yield.

  • The yield curve will likely continue to steepen in a rapid reopen.

    The view is for the U.S. Treasury yield curve to continue steepening as longer‑term interest rates rise. We believe that the 2021 environment will be one of accelerating growth/inflation, in which we’ve historically seen an average increase in the 10‑year yield of 50 bps, with a standard deviation of 100 bps.

  • Move to the better relative opportunity.

    In an environment of improving global economic growth, yield curves are likely to steepen. Typically, when this happens, credit outperforms government bonds and lower duration outperforms longer duration. 

  • The Canadian dollar remains tied to oil prices.

    Recently, the loonie’s relationship to oil and interest rates has completely broken down. We believe the recent move lower coincides with the broader risk-off market sentiment. Through the remainder of the year however, we expect the Canadian dollar to continue its appreciation relative to the U.S. dollar. We believe the range will be between US$0.83-0.85, with risk to the upside over the next six to 12 months.

Related viewpoints

Update to our Canadian dollar outlook

The Canadian dollar rallied against the U.S. dollar over the first five months of 2021, and many are wondering what could drive the loonie to climb higher.
Read more

The transitory inflation narrative continues … but is it real?

Are we in a transitory inflation period? When it comes to inflation, the impact from lockdowns will likely give way to the effects of reopening.
Read more

The opinions expressed are those of the contributors as of March 31, 2021, and are subject to change. A rise in interest rates typically causes bond prices to fall. The longer
the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest‑rate changes. The yield earned by a fund will vary with changes in interest rates.


Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.

The opinions expressed are those of Manulife Investment Management as of the date of this publication and are subject to change based on market and other conditions.
The information and/or analysis contained in this material have been compiled or arrived at from sources believed to be reliable but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use hereof or the information and/or analysis contained herein. Manulife Investment Management disclaims any responsibility to update such information. Neither Manulife Investment Management or its affiliates, nor any of their directors, officers, or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained herein.


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