Thursday, July 15, 2021
What a first half of 2021! As quick as it was, the economy continues to pick up speed as well. In fact, this could be one of the better years of economic growth we’ve seen in decades. This week in the LPL Market Signals podcast Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder breakdown how we see the rest of 2021 playing out.
Ryan noted that the growth rate of the U.S. economy may have peaked in the second quarter of 2021, but there is still plenty of momentum left to extend above-average growth into 2022. We forecast 6.25–6.75% U.S. gross domestic product (GDP) growth in 2021, which would be the best year in decades. We continue to watch inflation closely but believe recent price pressures are transitory and will begin to work their way off gradually later in the year.
The economy was supported through the pandemic by more than $5 trillion in stimulus measures and extraordinary support by the Federal Reserve (Fed). Jeff noted that policy will take a back seat in 2021 as private sector growth replaces stimulus checks. Tax policy, though, remains a concern. 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.
Jeff points out that the second year of a bull market is often more challenging than the first, but historically still usually produces gains. Economic improvement should continue to support S&P 500 Index earnings, which had a stunning first quarter. While valuations remain somewhat elevated, we think they look reasonable after considering still low interest rates and earnings growth potential. Our 2021 year-end S&P 500 fair-value target range of 4,400–4,450 is based on a price-to-earnings ratio (P/E) of 21.5 and our 2022 S&P 500 earnings per share (EPS) forecast of $205.
Ryan ends the conversation with fixed income. Inflationary pressure and economic improvement may put additional upward pressure on the 10-year Treasury Yield, and we continue to see the 10-year yield finishing 2021 in the range of 1.75–2.00%. Such a move would leave core investment-grade bonds near flat over the rest of the year. Nevertheless, bonds still can play an important role in a portfolio as a source of income and as a diversifier during equity market declines. We are also closely watching the Fed, which may announce plans to reduce its bond purchases later in the year.
Please read the full Mid-Year Outlook: Picking Up Speed publication for additional description and disclosure.
You can watch the full video below and directly on our YouTube channel. Please be sure to subscribe to the LPL Research YouTube channel so you don’t miss anything! Also, if you like our channel, please give us a positive review—it helps more than you know!
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking # 1-05167913