August 2021 Client Letter

August 5, 2021

Dear Valued Investor:

Six months and counting. That is the current monthly winning streak for the S&P 500 Index. To take that a step further, this key equity benchmark has posted gains in 13 of the last 16 months—dating back to the March 2020 low. With stocks nearly at a double from those lows, it has indeed been hard to quibble about what stocks have provided recently.

The primary upside equity catalyst in July appeared to be another healthy earnings season. So far, with over 60% of S&P 500 companies reporting results, 88% have beaten their earnings estimates. This would be the highest ever recorded if it stands, according to FactSet—and well above the 75% five-year average. There’s more. Add in the steady recent decline in interest rates, which help with equity valuation calculations, and you get an equity market on a hot streak.

Meanwhile, the Federal Reserve Bank (Fed) has, so far, remained relatively quiet about its plans to roll back its historic accommodation. Its recent two-day meeting closed with little fan-fare and negligible new information. Monetary policymakers are still discussing a plan to taper bond purchases that we expect to see uncovered in the fall.

Second-quarter U.S. GDP was reported in the last week of July. Although the 6.5% reading (quarter-over-quarter annualized) was below the Bloomberg consensus forecast of 8.4%, consumer spending exceeded expectations. Moreover, inventories declined at their second-worst rate in 12 years, setting up a possible boost in coming quarters when those inventories are replenished. While the post-COVID economic rebound has certainly been robust, supply chain issues continue to take some edge off growth.

Although we booked a lot of good news in recent months, we have now come upon a typically volatile period for stocks. The months of August and September have historically been a bit choppy as trading volume tends to dissipate and it may take less selling to move the major averages lower. That could be something investors will want to keep an eye on now that August has arrived. Also, consider that the second year of a bull market has historically brought more ups and downs.

Looking ahead, our stock market outlook remains positive as fundamental drivers have been robust, though we acknowledge that valuations are elevated. The latter point puts us on the lookout for a pullback that we believe is overdue, given the S&P 500 has not fallen as much as 5% since October 2020. The typical trading year brings several 5%-plus pullbacks and potentially one correction of the 10% variety. Should we get one, we believe investors may want to step in to do some quick bargain-hunting, as we would not expect a drawdown to last uncomfortably long. That said, stocks have come a long way and investors may want to double-check their allocations against their risk tolerance. Getting too far out over one’s skis is never a good idea.

Please contact me if you have any questions.

Sincerely,

Wayne Rigney

____________________________________________________________________________

Important Information

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.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of August 1, 2021.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking #1-05175384

Mid Year Outlook 2021

INTRODUCTION: PICKING UP SPEED

In the first half of 2021, the U.S. economy powered forward faster than nearly anyone had
expected. As we were writing our Outlook for 2021 in late 2020, our economic views were
significantly more optimistic than consensus forecasts—but in retrospect, not nearly
optimistic enough. Our theme was getting back on the road again and powering forward.
But as the economy accelerates to what may be its best year of growth in decades, power
has been converted to speed and we’re trading highways for raceways.

Speed can be exhilarating, but it can also be dangerous. The overall economic picture
remains sound, likely supporting strong profit growth and potential stock market gains. But
the pace of reopening also creates new hazards: Supply chains are stressed, some labor
shortages have emerged, inflation is heating up—at least temporarily—and asset prices
look expensive compared to history.

Markets are always forward looking, and in LPL Research’s Midyear Outlook 2021:
Picking Up Speed, we help you keep your eyes on the road ahead. The next stretch may
be a fast one and will have its share of opportunities, but also new risks to navigate. As
always, sound financial advice can be as important as ever to help steer you through the
environment and put in the miles toward meeting your long-term financial goals.

WANT TO LEARN MORE? Read the full article here.