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Market and Economic Factors for the Second Half of 2021

Market and Economic Factors for the Second Half of 2021

July 26, 2021

The first half of 2021 was busy and interesting. The S&P 500 ended the best first half of the year since 1998 despite potentially negative headlines including inflation surging to 30-year highs, the Fed discussing tapering of QE and the end of pandemic-related stimulus and economic support. We certainly enjoyed the resilient markets of the first two quarters, but the second half of the year is expected to be more volatile than the first. So, it’s important not to become complacent about market risks. Being blindsided by volatility could cause you to abandon long-term financial goals, and that’s what we want to avoid.
In recent weeks, we’ve already seen:

  • A continued spike in gas prices. Oil prices hit a six-year high at $76.98 per barrel on July 6, and gas prices have risen 40% since the beginning of January. However, higher gas and food prices does not necessarily equate to sustained higher prices in general.
  • The Fed raise its inflation expectation to 3.4%. This is an increase from the March projection of 2.4%, but Fed Chair Jerome Powell continues to reiterate that accelerated inflation is expected to be temporary.
  • Stocks weaken. Despite an above-expected start to earnings season and solid economic data, worries of slower second-half economic growth led to a pullback in stock prices in mid-July.
  • A projected increase in Social Security benefits. Recent projections show Social Security benefits increasing by 6.1% as a cost-of-living adjustment tied to a higher Consumer Price Index, which rose to 5.4% in June. However, an official announcement won’t be made until October or take effect until January 2022.
  • A spread of the Delta variant of COVID-19. The new strain has caused reinstated lockdowns across the globe, and a pause in economic recovery could mean continued declines for stocks.

Additionally, we know that the potential impact of changes from President Biden’s administration is on everyone’s mind. We’ve attended several conferences and webinars recently to explore tax planning strategies to combat anticipated adverse effects, and there’ll be more to come on that in the coming months. However, it’s too soon for most people to make significant changes in their financial strategies, so we’ll continue to watch for which proposed changes get signed into law.
To sum it up, we’re already seeing that the second half of 2021 will not be as calm as the first half because many factors that propelled stocks higher through June (COVID cases falling in the U.S., the economic reopening, more stimulus) won’t be present in the future. So, upcoming market volatility should not surprise you but also it should not cause you to deviate from your long-term strategy. Don’t let short-term activity distract you from what you want most.

We’re always here to answer questions, alleviate fears, review your portfolio, or stress test your financial plan. Wishing you good health and a great summer!

Earnings Scout, July 15, 2021
The Wall Street Journal, July 16, 2021 2021
CNBC, July 13, 2021
Reuters, July 14, 2021