Midyear Outlook 2021 | Daily Market Update

Tuesday, July 13, 2021

Top Story

Midyear Outlook 2021 launches today. While the speed can be exhilarating as economic growth accelerates, it can also be dangerous. Midyear Outlook 2021: Picking Up Speed is designed to help you navigate the risks and opportunities brought upon by the economy’s reopening for the rest of 2021 and beyond. View the interactive digital version here. The highlights in the report include:

  • Economy: Speeding Up. The country has reopened and there is still plenty of momentum to extend above-average growth into 2022. LPL researchers forecast 6.25 to 6.75 percent U.S. gross domestic product (GDP) growth in 2021, which would be the best year in decades.
  • Policy: Taking a Backseat. The economy was supported through the pandemic by more than $5 trillion in stimulus measures and extraordinary support by the Federal Reserve. Policy will take a back seat in 2021 as private sector growth replaces stimulus checks.
  • Stocks: Gaining Ground. Economic improvement should continue to support S&P 500 Index earnings, which had a stunning first quarter. While valuations remain somewhat elevated, LPL Research thinks they look reasonable after considering still low interest rates and earnings growth potential.
  • Bonds: Safety Features. Inflationary pressure and economic improvement may put additional upward pressure on the 10-year U.S. Treasury LPL Research anticipates the 10-year yield finishing 2021 in the range of 1.75 to 2 percent.

Daily Insights

US equities opened lower amid hotter than expected inflation data and bank earnings today

  • The Nasdaq Composite attempts to continue its run as the index reached an all-new high yesterday.
  • European equities are modestly lower through midday trading after the German market (DAX) reached an all-time high during Monday’s trading session.
  • Asian stocks closed higher as China’s exports unexpectedly increased amid solid global demand.

Inflation Continues To Run Hotter Than Expectations

  • The Bureau of Labor Statistics (BLS) released June data for the Consumer Price Index (CPI) this morning showing headline CPI jumped 0.9% month over month vs. estimates of 0.5%, while core CPI jumped 0.9% month over month vs. estimates of 0.4%.
  • Base effects from rolling off weak numbers a year ago also contributed to higher annual changes, as headline and core CPI jumped 5.4% and 4.5%, respectively, year-over-year.
  • We shine a light on several components that have been receiving increased attention lately: used car prices (10.5% monthly increase), airfare (2.7% monthly increase), lodging away from home (7.9% monthly increase), and owners’ equivalent rent of primary residences (0.32% monthly increase).
  • While supply chain bottlenecks are having an outsized effect on several components in the near term that should prove transitory, we continue to monitor wage growth and rents for clues about the “stickiness” of inflation.
  • We believe this report likely keeps the timeline for Federal Reserve (Fed) tapering intact.

Unofficial start to earnings season begins this morning. The unofficial start to earnings season, formerly launched by Alcoa’s earnings release, now gets underway with Goldman Sachs’ and JP Morgan’s second quarter earnings reports this morning. For more on our expectations for earnings season, see our recently released Weekly Market Commentary, “Three Things to Watch This Earnings Season.”

Small business optimism rises. The NFIB’s Small Business Optimism Index for June rose 2.9 points to 102.5, ahead of economists’ consensus expectation of 99.5.

  • The index hit an eight-month high as the effects of economic reopening continued to flow throw to broader economy.
  • Wage pressure and difficulty finding qualified employees continue to weigh on small businesses.
  • While the number of small business owners expecting the economy to improve over the next six months improved substantially, a larger number still expect business conditions to deteriorate.
  • The report highlights both the tailwinds small businesses are enjoying and the challenges they are facing from economic imbalances as the economy recovers.

Technical update

  • Stocks gained ground yesterday, though on significantly weaker breadth than Friday’s strong reading.
  • In addition to responses from bank earnings, all eyes will be on the market’s response to CPI data this morning.
  • The 10-year yield has bounced more than 10 bps from last week’s test of support, but still has more work to do before we can say the trend has resumed higher.

Three Things to Watch This Earnings Season

LPL Research anticipates a strong earnings season and outlines the three things investors should keep on their radars this quarter. Learn more in this week’s Weekly Market Commentary.

Tips For Young Investors

In this week’s LPL Market Signals podcast, LPL Director of Research, Marc Zabicki shares his journey and discusses ideas for navigating today’s markets for young investors.



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