Three Things That Worry Us

Three Things That Worry Us

June 29, 2021
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Three Things That Worry Us

Markets are off to a strong start this year, with the S&P 500 Index up about 14% so far. However, most of those gains came early in the year, and many stocks have stagnated over recent months. While we remain overweight stocks relative to bonds, in this week’s Weekly Market Commentary we explore three things that worry us that could make the market more susceptible to a pullback as we enter the second half of 2021.

Daily Insights

US equities point toward a mixed open to begin the week

  • The Nasdaq Composite opened higher amid market participants’ belief that the growth trade still has legs.
  • European markets are mixed through midday trading on a quiet start to the week.
  • Asian stocks finish mostly lower as China’s industrial firms’ profits in May showed a slowdown vs. April.

S&P 500 drifts higher in June despite Fed, inflation

We’re watching several risk factors for markets, but with reopening still the dominant story the S&P 500 Index is up almost 2% in June with three trading days left in the year.

  • Sometimes it’s easy to miss the big picture in the face of daily news flow, and while some of the impact of reopening has been priced in we’re still early in the economic cycle.
  • A shift in Federal Reserve rate hike expectations at their June policy meeting was largely catch up to the market and only a modest surprise.
  • Market behavior seems to be signaling that as long as inflation is in line with expectations, even if elevated, markets will take it in stride.
  • Stock market gains are likely to slow and the second year of a bull market does tend to be bumpier, but we still believe the broad economic picture remains supportive for equity markets.

Technical update

The S&P 500 closed at two consecutive record highs to end last week, but a lack of participation recently should be noted. This morning equities are little changed, but the dollar bears watching as it held its short-term breakout last week and is continuing higher this morning.

Week ahead

The following economic data is slated to be released this week:

Three Things That Worry Us

In this week’s Weekly Market Commentary we explore three things that worry us that could make the market more susceptible to a pullback as we enter the second half of 2021.

What Does The Fed Say?

On last week’s LPL Market Signals podcast, LPL Research discusses why a more hawkish Federal Reserve shouldn’t have been much of a surprise, the sharp earnings revisions higher, and reasons for downgraded technology.

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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.

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All index and market data are from FactSet and MarketWatch.

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