On Our Minds

Investors see an improving economy with continued low interest rates as positive.

Welcome to the Roaring ’20s

The S&P 500 Index gained 8.1% for the second quarter and 14.4% year-to-date despite concerns over Federal Reserve policy, fiscal spending and the spreading delta variant of COVID. Most investors see an improving economy with continued low interest rates being positive for corporate earnings. Small cap stocks, which are mostly leveraged to an improving domestic economy, are leading the market higher. The best performing sectors were energy, financial, healthcare, and materials as value and cyclical companies are perceived to have more inflation-induced pricing power. The reflationary and cyclical trade into financials, industrials, basic materials, and travel-related companies is beginning to wane, however, as earnings expectations are set astronomically high. This will make the second-quarter earnings period more challenging for those companies that miss high expectations. In addition, most commodity prices appear to have peaked. Growth stocks, particularly large cap technology stocks that are known for more consistent earnings, are coming back into favor as interest rates remain lower for longer.

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Investment Market Update: Positive Takeaways From 2020

2020 was an unusual and volatile one with the S&P 500 Index’s 34% decline in 30 days in March followed by a re-tracement and rise of over 16% by year-end. This proved once again that a longer-term outlook is required in successful equity investing.

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Market Starting to Show Improvement

I hope you are having a healthy summer and thought I would provide a summary of the August market activity.

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