September 2, 2021
Dear Clients & Friends,
The bull market continues, with the S&P 500 Index now up seven months in a row. Stocks have remarkably gained 20% year-to-date, with the S&P 500 making 53 new all-time highs before the end of August—another new record. All of this has happened with very little volatility, as the S&P 500 hasn’t had so much as a 5% pullback since last October.
Coming into this year, I was expecting a strong economy and robust stock market, but even I’m surprised at just how resilient things have been. Corporate earnings drive stock market returns over the long-term, and what we’ve seen from earnings so far in 2021 is a big reason why stock market returns have been so impressive. We saw a record-breaking second quarter earnings season with more than 86% of S&P 500 companies beating their consensus earnings estimates, the highest ever recorded and well above the 75% five-year average. S&P 500 earnings are now 26% above pre-COVID-19 levels based on the 2021 consensus estimate, helping to justify stocks at current levels.
Another reason stocks have been so strong is Federal Reserve’s accommodative monetary policies. The Fed is expected to begin to taper its monthly bond purchases (currently $120 billion), but it appears to be committed to leaving rates low for the foreseeable future. The Fed likely won’t consider increasing rates until the employment picture improves significantly, and it will be cautious before removing stimulus after the fastest recession of our lifetimes, especially if COVID-19 is still influencing behavior. The Fed’s accommodative stance should continue to be a tailwind for equities.
Worries are adding up though, even as stocks hit new highs. Supply chain disruptions are contributing to higher input prices in select industries. There are concerns about the future of Afghanistan. The highly contagious Delta variant has nearly 100,000 Americans nationwide currently hospitalized. And China’s regulatory crackdowns could lead to further bouts of volatility. As a result, domestic consumer confidence has taken a hit recently, which could lead to a weaker-than-expected third quarter for the U.S. economy. However, if Delta variant concerns ease, any consumption that is lost in the third quarter will likely be made up in the fourth quarter.
Additionally, late summer through early fall has been a seasonally volatile period for stocks historically. Although stocks shook off the traditionally weak August, September is upon us—and this month is historically the worst of the year for stock returns. Not to mention October is historically the most volatile month of the year for stocks. Also, the second year of a bull market has historically seen stocks pull back after big gains in year one.
Looking ahead to the final months of the year, I remain optimistic on stocks and the U.S. economy. However, stocks haven’t pulled back 5% for nearly a year, and I believe investors should be on alert for potential seasonal volatility, aiming to use it as an opportunity when stocks go on sale. They say the stock market is the only place where everyone runs out of the store screaming when things go on sale. It’s good to have a plan in place when that sale comes along.
Please contact me if you have any questions—that’s what I’m here for. Enjoy your Labor Day weekend!
Nicholas J. Enzweiler is a registered representative with, and securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group, a registered investment advisor. Strategic Wealth Advisors Group and Mercer Partners Wealth Management are separate entities from LPL Financial.
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 September 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.