We promised on today’s podcast that we would launch our new equity theme basket on travel companies today, but the underlying calculations on the basket is not done, and as a result it will be on Monday. We are excited about launching this basket as there is no good ETFs out there on the travel theme, and specially not a broad approach to it, so we truly believe we are bringing a unique basket to the marketplace like our green transformation and commodity sector baskets. In today’s equity update we will instead go through various interesting developments in the equity market.
Rising interest rates create divergence
Regularly readers of our equity notes will know that we have talked a lot about interest rate sensitivity, even before it become a visible thing in the equity market, and today we are seeing this on full display with technology stocks underperforming the overall equity market. Our view is that the divergence between technology stocks and the rest of the market could continue to be a theme as US interest rates continue to rise in a repeat of the same underlying divergence during the peak of the dot-com bubble in 2000. We are significantly more upbeat on US interest rates than consensus and believe we will hit 2.5% by year-end driven inflationary pressures caused by overstimulating the economy. The chart below shows that the US economy is currently having a 3% GDP output gap with 16.2% fiscal deficit. As the US economy reopens after vaccination over the summer the output gap will quickly be closed and the $1.9trn stimulus bill just passed will accelerate and stimulate a US economy already operating at full speed.