Midyear market review: What’s ahead for stocks

Anthony Saglimbene, Global Market Strategist – Ameriprise Financial
As of June 15, 2021

Global stocks sit at a crossroad heading into the second half of the year. This is because equity prices have moved higher through most of the first half as a result of several key factors:

  • Surges of economic activity across the globe 
  • Acceleration of vaccination rates in developed markets
  • A fade of pandemic effects in the United States
  • Robust corporate profit growth
  • Strong confidence levels across businesses, consumers and investors
  • Easy monetary and fiscal conditions
  • Historically low interest rates

Notably, market tone has moved beyond the growth/momentum drivers that carried stocks higher last year. Cyclical value stocks in the Energy, Financials, Industrials and Materials sectors remain the clear market leaders in 2021. These areas have benefited from a resurgence in business activity as a result of global reopening trends. 

While performance across broader stock indexes has cooled since mid-April, small-cap stocks are leading U.S. benchmarks higher through the first six months of the year. This includes businesses that benefit from a pickup in domestic growth.

Overseas, stock gains across Europe have accelerated more recently. Increased vaccination rates, solid profit growth and more optimism toward economic recovery have caused stocks to gain ground on the U.S. 

While it may be premature, flatter performance in the U.S. and Asia Pacific (excluding Japan) — combined with more robust performance across Europe — could be a sign of added market rotation ahead. Specifically, “out” of areas that have led the pandemic recovery “to” regions that are starting to catch up.

Back at home, the COVID-19 stimulus relief Congress passed in early March helped fuel added spending in the first half. Retail, hospitality, travel and leisure areas continue to see boosted demand, aided by more of the U.S. population being fully vaccinated against COVID-19. However, the additional stimulus, combined with an already strengthening economy, has fueled increasing concerns about higher interest rates and inflation pressures. We believe most of the ongoing supply disruptions and inflation pressures experienced in the first half could see some reprieve later this year.

For the second half of the year, investors should consider the following:

  • We believe economic trends in the U.S. and abroad should continue to improve. Along with easy monetary policies, stocks should continue to outperform bonds.
  • Cyclical value stocks could continue to shine. Strong year-over-year profit growth, improving business trends and reopening momentum provide a very supportive backdrop for continued market leadership.
  • Market performance in the second half could be driven by how actual data tracks against elevated expectations. Investors broadly understand economic and profit growth is likely to be very robust through the rest of the year. For several months, however, some of the data hasn’t met elevated expectations and has contributed to flatter performance across U.S. stocks. Moving forward, equity prices may be more sensitive to changes in growth expectations as opposed to the underlying data itself (which should remain solid).
  • Temporary or more permanent higher inflation — we believe this is likely the central variable that could affect stock prices over the coming months. Inflation data that eases due to improved supply conditions and reduced shortages (e.g., across commodity prices, semiconductors and labor) could be greeted with higher stock prices. However, if supply constraints linger and inflation pressures across consumer-facing products/services prove stickier (potentially sapping demand), stocks could face near-term selling pressure. Implications for Federal Reserve policy, corporate profit margins and economic growth are all in the cross-hairs of inflation dynamics.
  • In our view, investors are better served by maintaining a healthy allocation to equities and recognizing that while near-term conditions could look choppier over the summer months, longer-term conditions favor stocks.

As markets await further data, this is a great time to speak to your Ameriprise financial advisor. Overall, the stock market is poised to post a solid first half. Because of strong performance across equities — combined with subpar performance across bonds — your portfolio may have drifted out of alignment with your original strategic asset allocation targets.

At this halfway point of the year, taking inventory of where you stand and reassessing your mix of investments is a good choice, in our view. Personalized advice from your Ameriprise financial advisor can help keep you on track with your longer-term goals.

Data source for indices and sector graphs: Morningstar Direct, as of June 7, 2021.

Past performance is not a guarantee of future results.

Sources: FactSet and Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed in this material are as of the date published and are subject to change without notice at any time based upon market and other factors. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. This information may contain certain statements that may be deemed forward-looking. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those discussed. There is no guarantee that investment objectives will be achieved or that any particular investment will be profitable.
This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of a financial advisor regarding your particular financial concerns.
Information provided by third parties is deemed to be reliable but may be derived using methodologies or techniques that are proprietary or specific to the third-party source.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
A fund may invest significantly in issuers within a sector that may be negatively affected by market, economic or other conditions, making the fund more vulnerable to unfavorable developments in the sector.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
The S&P 500 Index is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value (shares outstanding times share price), and its performance is thought to be representative of the stock market as a whole. The S&P 500 index was created in 1957 although it has been extrapolated backwards to several decades earlier for performance comparison purposes. This index provides a broad snapshot of the overall U.S. equity market. Over 70% of all U.S. equity value is tracked by the S&P 500. Inclusion in the index is determined by Standard & Poor’s and is based upon their market size, liquidity and sector.
Definitions of individual indices mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.