2nd Quarter Market Update – 2021
Steven Dye fills us in on what has gone on in the financial markets this quarter. If you have any questions, don't hesitate to contact us.
Hi there, it is time for another market update. For those of you that do not know me, I am Steven Dye, a partner, and Financial Advisor with Forward Financial Group. I am excited to bring this quarter’s update to you in a different way, through video! Let us know if you like the new format!
We are over a full year removed from the initial stay at home orders. So much has changed in that time, but we are excited for the return to normal we have already been seeing over the last few months. The economy is starting to feel normal again as well. We are still seeing a lot of volatility in the stock markets, and that is to be expected. The stock market did so well at the end of last year and the beginning of this year, even though the economy was not where it is now. It makes sense that even though earnings for the companies in the S&P 500 exceeded expectations we did not see a huge bump. A lot of that pricing has been worked in. However, that does not mean there is no more room to run. With forecasts for gross domestic product (GDP) continuing to be upgraded we still expect this year to see market growth with the continued reopening. The average expansion lasts five years, but the recession last year was nothing average. So even though we are optimistic for the short term, we still need to keep in mind that investing is about taking risk, and if we do not have time to take that risk, we need to adjust portfolios.
We need to also address the elephant in the room, Inflation. It has been all over the news, and we have been getting many questions about it. The Consumer Price Index (CPI) rose 0.8% month over month, and 4.2% year over year. This is a significant number without context. But let us dig deeper and see what is causing this number to be so high right now. First, it is simple supply and demand. We are still dealing with supply chain issues. It is still difficult to get many goods and jobs are hard to fill. This causes what is being sold to be sold for a higher price. Next, what are the items with increases? According to LPL Weekly’s Market Commentary on May 18th, used vehicles climbed 10%, lodging climbed 7.6%, airfare climbed 10.2%, Car Rentals climbed 16.2%, and Sporting events jumped 10.1%. Do you see a theme? Many of the increases are heavily impacted by the reopening. People that have not traveled in a year are ready to travel. Others are going to live events again. The outlier would be used vehicles, but there is a shortage in semiconductors that are making it hard for car manufacturers to produce enough to keep up with demand…again supply and demand. With all this said, we expect that inflation is transitory and once the return to normal just becomes normal again these inflation numbers will even out.
Which leads me to what changes we have made to the portfolios. This quarter was more of a traditional rebalance compared to how many changes we made last year. We shifted further into value vs. growth (think of Dow Jones vs. Nasdaq). We also are continuing to invest internationally, especially in the bond space. We are keeping the portfolios very diversified.
Overall, the economy is continuing to strengthen, and we are off to a better start this year than almost any expert predicted, but as always, we still expect a fair amount of volatility, and there is always risk in investing. If you would like to adjust your financial plan or talk to one of us about whether your portfolio matches your risk tolerance and goals, we would be happy to go over it with you.
Thanks for taking the time to watch if you made it this far, and I look forward to seeing you soon and answering any questions that come up!
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. The economic forecasts set forth in this material may not develop as predicted. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal.