The 3 RISKS to Watch for the Rest of the Year.
Looking back over the year, the S&P 500 index has posted seven straight monthly increases and has touched a new record high over 50 times. That’s the most record highs in seven months since 1964. The U.S. economy has also been in recovery and expansion mode with corporate earnings and revenues increasing with a rallying market.
However, as you are aware, the post-pandemic boom has been far from perfect. Supply chains remain in flux. Many companies are struggling to hire workers. Imbalances between supply and demand have thrown off the prices of everything from cars to homes to lumber and aluminum. The most recent Covid-19 variant surge has also weakened consumer sentiment.
Even with all this, the stock market continued its upward trend. Investors should pay close attention to earnings and interest rate changes relative to expectations. Taking this all in, I have three risks to monitor for the rest of 2021.
- Sticky Inflation
The CPI rose 5.4% in July 2021 from July 2020. That is the highest 12-month jump since 2008. Policymakers continue to insist that inflationary pressures are transitory, and the present market is accepting the promise. Sustained increased inflation could force the Fed to increase interest rates, causing volatility in the markets.
- Corporate Earnings
Corporate earnings may be lower than expected in Q3 and Q4. We are all aware that the Delta Variant is causing problems in many parts of the country; according to a study by the University of Michigan, consumer sentiment is waning. This will put pressure on profits margins because of the higher costs and lower demand. Reduced corporate earnings could affect stock prices.
- More restrictions and shutdowns
The United States is fortunate that we have had access to the vaccine. Politics aside, we also have a relatively high vaccination rate. This is not true for many parts of the world, especially emerging markets. In that case, the threat of shutdowns and restrictions could slow the worldwide economic expansion and thwart the recovery that has been building.
The U.S. economy is expanding and will almost certainly continue to do so for the balance of 2021. The question is whether corporations can overcome these headwinds.
Consequently, we are raising some cash and rotating into quality to focus on long-term financial success.