The first six months have gone fairly close to script, in my\nview, which tees up a few key factors to watch in the second half. Here are\nthree factors that investors should keep an eye on.<\/p>\n\n\n\n
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Make the Most of the Remainder of 2021 – Invest Towards Your Long-Term Financial Goals!<\/a><\/strong><\/p>\n\n\n\n With the first half of 2021 already behind us, we recommend\nthat you stay focused on your long-term financial situation. Do not let worries\nand concerns drive short-term decision-making, instead focus on key economic indicators that can make\na positive impact on your financial success.<\/p>\n\n\n\n To help\nyou do this, I am offering all readers our just-released Stock Market Outlook\nreport. This report contains some of our key forecasts to consider such as: <\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 ____________________________________________________________________________<\/p>\n\n\n\n Factor #1: Will\nInflation be \u201cTransitory\u201d?<\/strong><\/p>\n\n\n\n The consumer price index jumped 5.4% in June \u2013 its quickest\nincrease in 13 years \u2013 and has been trending firmly higher. Globally, inflation\nmeasures in 49 countries have also been tracking higher.2<\/sup><\/p>\n\n\n\n The inflation debate continues to center around whether\nthese price pressures will be transitory or more nefarious and long-term. In Q2\nearnings calls and reports \u2013 both of which we monitor closely here at Zacks\nInvestment Management \u2013 we noticed a majority of CEOs referencing inflation. Here\nare a couple of examples that stood out:<\/p>\n\n\n\n From the massive consumer packaged goods company, Conagra: \u201cWe expect the negative impact of the cost\ninflation to hit our financials before the beneficial impact of our responsive\nactions, including our pricing<\/em>.\u201d<\/p>\n\n\n\n From PepsiCo: \u201cWe’re\nseeing inflation in our business across many of our raw ingredients and some of\nour inputs in labor and freight and everything else<\/em>.\u201d<\/p>\n\n\n\n Early on, it appeared price pressures were largely being\ndriven by energy, reopening categories like restaurants and travel\/hospitality,\nand big-ticket categories like used cars and housing. But we\u2019re seeing\ninflationary pressures in much broader categories this summer, and many\nproducers are indicating continued firmness in commodities and other input\ncosts. Continued supply chain bottlenecks aren\u2019t helping.<\/p>\n\n\n\n If inflation does indeed prove sticky, we\u2019d generally want\nto favor companies with strong pricing power, i.e., firms that can pass along\nrising costs to consumers without losing market share. <\/p>\n\n\n\n Factor #2: Will\nLeadership Continue to Shift Between Cyclicals (Value) and Growth?<\/strong><\/p>\n\n\n\n We have seen quite a bit of style rotation year-to-date so\nfar, namely as capital moved between cyclical (value) stocks and secular growth\nstocks. From the beginning of the year through the middle of May, value\noutperformed\u2014the Russell 1000 Value index rose +15% compared to just +2% for\nthe Russell 1000 Growth index. From mid-May to the end of the second quarter,\nhowever, U.S. Treasury bonds have rallied alongside growth stocks (+12%), while\nvalue stocks have lagged (+2%). <\/p>\n\n\n\n There are some logical explanations for the rotation\nyear-to-date. When vaccines were announced to be effective in November,\neconomically sensitive cyclical stocks started to outperform as investors\nanticipated the economic reopening. Some of the most beat-down stocks during\nthe pandemic started to rally strongly. <\/p>\n\n\n\n But the rapid surge in demand gave way to what is largely\nconsidered peak growth in Q2, which has caused investors \u2013 in my view \u2013 to\nrotate into growth names expected to perform better as the U.S.\u2019s pace of\ngrowth moderates. Concerns over rising inflation have also nudged capital back\nto secular growth names. <\/p>\n\n\n\n The key question from here is whether this rotation\ncontinues or if the value will start to lead again. In my view, economic growth\nhas likely peaked, but I think will it continue at a faster pace than many\nexpect. In other words, cyclicals likely have some room to run, but quality\ngrowth names should also do well in an expanding economy. I expect leadership\nto shift quite a bit, which favors a broadly diversified approach to equity\ninvesting.<\/p>\n\n\n\n Factor #3: Are\nInterest Rates Poised to Move Higher?<\/strong><\/p>\n\n\n\n Interest rates in\nthe U.S. \u2013 as measured by the 10-year and 30-year U.S. Treasury bond yield \u2013\nmoved higher in the second half of 2020 and throughout Q1 2021. However, as you\ncan see in the chart, yields have slipped back over the last quarter: <\/p>\n\n\n\n There could be a few reasons for this fluctuation in rates.\nYields may have pushed higher in anticipation of higher inflation and economic\ngrowth, and we may have seen some retracing as investors started to shift expectations\nto moderating economic growth and inflation that may indeed be transitory. <\/p>\n\n\n\n Going forward, I\u2019d expect better-than-expected economic\ngrowth and an eventual reduction in the Fed\u2019s bond purchases to put upward\npressure on rates, both of which I could see playing out by the end of the\nyear. <\/p>\n\n\n\n Bottom Line for Investors <\/strong><\/p>\n\n\n\n I think worries over sticky inflation, peaking economic\ngrowth, and rising interest rates are together contributing to a wall of worry\nover the durability of the economic expansion \u2013 and by extension, the bull\nmarket. But in my view, the worries may inspire investors to start moderating expectations\nfor sustained economic growth and profitability, and falling expectations could\ngive way to positive surprises. And stocks tend to love positive surprises. <\/p>\n\n\n\n This\nleads to the main point – stay financially prepared! To positively impact your\nlong-term investments, we recommend concentrating on the facts and hard data. <\/p>\n\n\n\n
IT\u2019S FREE.\u00a0Download the Just-Released August 2021 Stock Market Outlook<\/a>1<\/a><\/sup><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/4_pic1-1024x395.png\")