After a strong first half of the year, stocks began the second half with continued optimism. Interest rates remain low, new COVID cases are significantly below January’s peak (although the Delta Variant does provide cause for concern), economic growth is robust and unemployment numbers continue to improve.
We are entering earnings season and Wall Street analysts are expecting the biggest quarterly earnings growth rate in a decade (according to FactSet). Second-quarter earnings for the companies in the S&P 500 were forecast to jump an average of 69%. Keep in mind this number is somewhat skewed by comparison to last year’s second quarter when we were experiencing a significant economic contraction.
Unemployment remains at 5.9%. However, we are also suffering from a labor shortage which is preventing some businesses from completely reopening. In fact, an astonishing 9.2 million job openings were reported in May.
Inflation continues to be a primary concern for the markets and economy. Recent remarks from the Federal Reserve (Fed) predict inflation will likely top 3.4% by the end of 2021 – significantly above the Fed’s long-term goal of 2%. However, the Fed’s opinion continues to be that this increase to inflation will remain for a measured amount of time will not cause negative long-term implications on the economy. Current inflation is in parts of the economy impacted by the reopening and will be “transitory” not persistent. Addressing concerns that we may be entering a prolonged period of high inflation, Fed Chair, Jerome Powell, said it is “very, very unlikely” that the US would see inflationary pressures as we did in the 1970s.
As on July 15th, all the major markets posted gains for the first half of the month. The Dow Jones Industrial Average (Dow) gained 485 points (1.4%). The S&P 500 also showed strong returns, increasing by 63 points (1.46%). The NASDAQ Composite Index (NASDAQ) rose by 39 points (0.27%). Once again, the Dow, S&P 500, and NASDAQ reached new all-time record closes over the past two weeks.