LPL Market Signals: Midyear Outlook 2021 Is Here: What Does LPL Research Think Is On the Horizon?

Market Blog

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.

The Economy

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.

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