Newspaper Page Text
Page 2A
•Reporter
August 11, 2021
Reaching the
Inflection Point -
Perspectives for
Article provided by Jason
D. Jungberg, AAMS®, Se
nior Vice President/Invest
ments with Stifel, Nicolaus
& Company, Incorporated
and prepared by Michael
O’Keefe, CFA, Chief
Investment Officer and
Global Head of Investment
Strategy
Each calendar year, as
we hit mid-year, start
summer, and take a little
vacation, we reflect on
year-to-date results versus
our expectations and
where were headed for
the balance of the year.
In 2021, this inflection
point has more mean
ing, as economic growth
from the recovery peaks
and market performance
is driven by a shift to the
fundamentals. We will
once again focus further
on our key initiatives,
seeking to do our best in
the second half of the year
and prepare for 2022.
With the country slowly
reopening, we’ve expe
rienced a burst of activ
ity. Data shows that U.S.
economic growth in this
recovery is likely peak
ing in the second quarter
of this year. In the wake
of the big decline in the
first half and the bounce
that occurred in the third
quarter of 2020, we’ve
seen growth building each
quarter from the fourth
quarter to the peak in the
second quarter, followed
by the inevitable slow
down toward longer-term
trend growth each quarter
through 2022. The Fed
forecasts long-term trend
growth to be 1.8%, and
consensus indicates we’ll
be back there around
2024/2025.
Equity markets have
posted positive returns in
the first half of 2021. Two
popular indexes, the Dow
Jones Industrial Average
and the S&P 500, re
turned 13.8% and 15.3%,
respectively. The Nasdaq
Composite, the tech-
oriented index, posted a
return of 12.9%, a modest
slowdown after return
ing 45.1% in 2020. The
Russell 2000, an index of
small cap companies, re
turned 17.5%, outpacing
the large cap Russell 1000
return of 15.0%. Value
stocks outperformed
growth, and U.S. stocks
performed better than
non-U.S. stocks, as mea
sured by the developed
market EAFE Index.
Along with a burst of ac
tivity, we’ve also seen a re
turn to a sense of normal
cy - some good and bad.
Enhanced unemployment
benefits will be discon
tinued, and relief checks
will be spent. Some living
on this support will head
back into the job market,
and consumer spending
will depend on earn
ings. Businesses aided by
government support will
reengage and rebuild, and
their success will eventu-
Market
2021
ally depend on delivering
valuable goods or servic
es, managing revenue and
expenses, and delivering
earnings to shareholders.
Economies supported by
the effects of this fiscal
stimulus will grow based
on these fundamen
tals. Eventually, interest
rates - including the fed
funds rate - will rise, and
governments, businesses,
and consumers alike will
be tested as their cost of
debt rises.
As we hit this mid-year
inflection point, we look
forward to the second
half of the year and try
to discern - where do we
go from here? Consen
sus signals above-trend
economic growth, but
slowing. We see interest
rates rising modestly. For
stocks, we’re modestly
positive looking forward,
expecting low-to-mid
single-digit returns for
the second half of the
year. But with this view,
we point to our scenarios.
There is a chance of
surprises to the upside,
and economic and market
growth unfolding better
than expected. However,
there’s also a chance of
downside surprises, such
as sustained inflation
or a virus variant that
spreads to the point of a
slowdown or reversal in
the re-openings. Worry
about these risks will
likely increase volatility
for the balance of the year.
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