Market Share Newsletter Vol 3 Issue 14

 

July 6, 2021

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We hope that you enjoyed a nice Independence Day weekend!
 
As we start the second half of 2021, we are reflecting on the past six months in the economy and markets and looking at what lies ahead.
 
From an optimistic viewpoint, the first six months of the year have “filled the glass more than half full” as the U.S. economy has continued to improve. According to the Federal Reserve Board of St. Louis, the economy has improved to the point that the GDP has surpassed pre-pandemic levels. This remarkable recovery was supported by a tremendous response from the Federal Government in the form of stimulus money and quick, decisive actions by the Federal Reserve to support the financial markets. However, the economy wasn’t the only good news. Equity markets were strong globally, with the U.S. stock market being one of the best, and most stock portfolios are up over 12% through the end of June. Historically, this would mean an equal to or better than the expected annual return for stocks. So, in the case of equity markets in the U.S., the glass may already be full.
 
As the second half of 2021 begins, we expect more positive economic news and for the pandemic to continue to subside. The topics that we are closely watching that could dampen the good news include employment data, inflation, housing, and earnings.
 
Even though the overall economy has fully recovered and there is continued employment growth each month, U.S. employment numbers still lag pre-pandemic levels. Continued improvement in employment growth would significantly extend the current economic strength we are experiencing.
 
Inflation has been reported at higher levels than we have seen in years and has even sparked conversations about further progression. If this continues, we may see inflation levels not experienced in a of couple decades. We have started to see prices in several commodities start to fall from the spikes we saw in the first half of the year–oil being an exception to that. But, if inflation appears to be more than transitory, that could create bumps ahead for bonds and stocks.
 
The recent housing data revealed home prices growing by levels not seen in the 30+ years of the Home Price Index. Some analysts are comparing the current housing market to the housing market before the Great Recession.
 
Lastly, the stock market will continue to focus on the earnings recovery of corporate America. If earnings near or exceed expectations, stock prices will have support for the relatively high valuations we see today. If earnings greatly disappoint or companies share a more timid outlook, we could see increased volatility in stock prices.
 
We are optimistic that the good news will offset the potential challenges ahead and keep our glass full for 2021.
 
As always, thank you for the opportunity to partner with you.
 
Paul Gifford, CFA
Chief Investment Officer
Wealth Advisory Services
Investment Management Group
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
V.P. and Sr. Fixed Income Portfolio Manager
Wealth Advisory Services
Investment Management Group
ClapsaddleE@1stsource.com
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
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