Wow, we have already passed the halfway point for 2021. It seemed a year ago that 2020 would never end and now the first six months of 2021 have flown by! Many of my clients and friends feel nervous these days. I’m not sure if it is the phone in all of our pockets letting us know every negative event as it happens or if this uncomfortable feeling is related to coming out of covid and the frequent reminder of difficulty that this pandemic brought to us all.

The challenge for me, as the financial advisor is to let clients know that despite these feelings, the U.S. economy has surprised nearly everyone to the upside as it speeds along thanks to vaccinations, reopening, and record stimulus. LPL Financial Research forecasts 6.25-6.75% GDP growth in 2021, which would be the best year in decades. Last year’s 3.5% drop in GDP, the worst year since the great depression, may not be forgotten-but it has been left in the dust of 2020.

There are always concerns in Bull Markets (rising markets).  Inflation is a concern because if it became significant, interest rates would rise to counteract it and that could be a headwind for equity prices. LPL Research believes recent price pressures are transitory however and that these inflation spikes will work their way down gradually later in the year.

During the pandemic, the economy was supported by more than $5 trillion in fiscal stimulus measures and extraordinary support by the Federal Reserve (fed). Policy was also in the foreground as safety restrictions created a heavy economic burden for many businesses and families. LPL believes policy will take a back seat in 2021 as reopening and private sector growth replaces stimulus checks.

The biggest policy risk may be around taxes, with businesses and wealthy households both facing the prospect of a higher tax burden to pay for proposed new spending and help manage the deficit. Historically higher personal tax rates have had only a modest impact on markets, but higher corporate taxes would have a direct impact on earnings growth, potentially limiting stock gains.

We are in the second year of this Bull Market, which is sometimes more challenging than the first, but historically still usually sees stocks climb higher. LPL Research expects the strong economic recovery to continue to drive strong earnings growth and further support further gains for stocks. However, after a more than 90% gain off the March 23, 2020 lows through the first half of 2021 – stock prices reflect a lot of good news. As inflationary pressures build and interest rates potentially rise further, the pace of stock market gains may slow, but LPL still sees equities gaining ground. 

We hope you are well and please do not hesitate to contact us if you have any investment questions. –Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary dated 7/19/21, Approved Tracking #:  1-05168699. LPL Approved Tracking #1-05170846.