OP-Ed: As Stocks Close At A Record Half-Year, Unease Grows
Published July 9, 2021
The U.S. stock market closed out the first half of 2021 at a record. The market showed gains through July 1 for five consecutive quarters, the longest streak since 2017. Business confidence has rebounded. While it seems that stocks can only go up, the outlook is increasingly hazy.
Fears of inflation cloud the outlook. The Federal Reserve chairman says the inflation threat is transitory, the result of distribution bottlenecks from the resurgence of the economy. Investors are not so sure if the rate of inflation is transitory or more permanent.
Savvy investors are looking for sustainable earnings. Who will be the long-term winners?
The trajectories of value and growth stocks have disconnected. In a bull market, both categories would be moving up. Value stocks have been outperforming growth, indicating that investors are uncertain about market direction.
While corporate earnings have been stellar, many investors believe that the economy’s rebound has been priced in and that stocks, trading at high multiples, are priced to perfection. Stocks are now in the second year of a bull market and can be expected to be choppy and make more muted gains.
Interest rates have risen, as might be expected in inflationary times. The yield on the benchmark 10-year Treasury had been edging up, but then in July fell to its lowest level since February, and may go even lower. Still, rising interest rates could test the downward trend.
Rising rates would favor utilities and financials.
The U.S dollar is strengthening, which makes U.S. goods more expensive in international markets and results in difficulties for emerging market countries to repay their U.S. dollar-denominated debt.
The Federal Reserve now predicts 2021 U.S. economic growth of over […]