As we close the second quarter of 2021, the S&P 500 has reached a total gain of 14.4%, the largest percentage gain we have seen since 1998. The market got a boost from Covid-19 vaccinations, which have helped the U.S. economy reopen, while trillions of dollars of fiscal stimulus have helped shore up demand.
While the growth of the U.S. economy remains consistent, there are concerns regarding inflation risk. It is difficult to predict whether the acceleration of inflation will be transitory or act as a long-term trend forcing the Federal Reserve to increase interest rates sooner than expected.
Investment managers are growing anxious about what will happen as we approach 2022. Many predict that volatility will return and that it will not take much to send the stock market into a decline. As the markets continue to grow, the economy also risks a quicker slowdown of fiscal growth than investors expect, resulting in major pullbacks from investors.
While pullbacks are typically a normal response during a bull run, they have remained mild throughout the first half of the 2021 fiscal year. Volatility has increased recently, and earnings season is upon us with stock priced for perfection. Let’s stay alert to short-term opportunities while keeping our eye on the long term.
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