Monday, June 28, 2021
Three Things That Worry Us
Markets are off to a strong start this year, with the S&P 500 Index up about 14% so far. However, most of those gains came early in the year, and many stocks have stagnated over recent months. While we remain overweight stocks relative to bonds, in this week’s Weekly Market Commentary we explore three things that worry us that could make the market more susceptible to a pullback as we enter the second half of 2021.
US equities point toward a mixed open to begin the week
- The Nasdaq Composite opened higher amid market participants’ belief that the growth trade still has legs.
- European markets are mixed through midday trading on a quiet start to the week.
- Asian stocks finish mostly lower as China’s industrial firms’ profits in May showed a slowdown vs. April.
S&P 500 drifts higher in June despite Fed, inflation
We’re watching several risk factors for markets, but with reopening still the dominant story the S&P 500 Index is up almost 2% in June with three trading days left in the year.
- Sometimes it’s easy to miss the big picture in the face of daily news flow, and while some of the impact of reopening has been priced in we’re still early in the economic cycle.
- A shift in Federal Reserve rate hike expectations at their June policy meeting was largely catch up to the market and only a modest surprise.
- Market behavior seems to be signaling that as long as inflation is in line with expectations, even if elevated, markets will take it in stride.
- Stock market gains are likely to slow and the second year of a bull market does tend to be bumpier, but we still believe the broad economic picture remains supportive for equity markets.
The S&P 500 closed at two consecutive record highs to end last week, but a lack of participation recently should be noted. This morning equities are little changed, but the dollar bears watching as it held its short-term breakout last week and is continuing higher this morning.
The following economic data is slated to be released this week:
- Tuesday— FHFA House Price Index (April), Case-Shiller Home Price Index (April), Consumer Confidence (June)
- Wednesday— ADP Employment Report (June), Pending Home Sales (May)
- Thursday—Weekly initial and continuing claims, Market Manufacturing PMI (June), Construction Spending (May), ISM Manufacturing Index (June)
- Friday— Nonfarm Payrolls (June), Unemployment Rate (June), Average Weekly Hours and Earnings (June), Trade Balance (May), Factory Orders (May)
Three Things That Worry Us
In this week’s Weekly Market Commentary we explore three things that worry us that could make the market more susceptible to a pullback as we enter the second half of 2021.
What Does The Fed Say?
On last week’s LPL Market Signals podcast, LPL Research discusses why a more hawkish Federal Reserve shouldn’t have been much of a surprise, the sharp earnings revisions higher, and reasons for downgraded technology.
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