{"id":9836,"date":"2021-09-13T13:42:13","date_gmt":"2021-09-13T13:42:13","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9836"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"3-market-risks-to-watch-for-in-the-months-ahead","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/3-market-risks-to-watch-for-in-the-months-ahead\/","title":{"rendered":"3 Market Risks to Watch for in the Months Ahead"},"content":{"rendered":"\n<p>By the end of August, the S&amp;P 500 index had posted seven\nstraight monthly increases and had touched a new record high over 50 times \u2013\nthe most in seven months since 1964.<sup>1<\/sup> The U.S. economy has also been\nin recovery and expansion mode, with corporate earnings and revenues powering\nhigher alongside a rallying market. <\/p>\n\n\n\n<p>As many investors know, however, the post-pandemic boom has\nbeen far from perfect. Supply chains remain tangled, many companies are\nstruggling to hire needed workers, and supply\/demand imbalances have thrown off\nthe prices of everything from cars, to homes, to lumber and aluminum. The\nlatest surge in Covid-19 cases is also weighing on consumer sentiment and\nthrowing a wrench in office reopening plans. &nbsp;<\/p>\n\n\n\n<p>Even still, the stock market has largely taken these issues\nin stride, seeming to reflect only the overwhelmingly better-than-expected\nearnings season. To me, this outcome is to be expected \u2013 I have written many\ntimes that stock prices are affected most by how earnings and interest rates\nperform <em>relative to expectations<\/em>. Better-than-expected\nearnings coupled with lower-than-expected interest rates are great for stocks,\nin my view, and that\u2019s what we got in the first half of 2021. <\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_09_13&amp;content=stock_market_outlook_report \">See How You Can Protect Your Investments From Potential Risks!<\/a><\/strong><\/p>\n\n\n\n<p>Before we dive\ninto potential risks for the rest of 2021, I want to remind you about the\nimportance of keeping an eye on economic indicators as opposed to making\nemotional, knee-jerk reactions. Although this may be difficult to do,\nespecially in the midst of so many negative news stories, we can help!<\/p>\n\n\n\n<p>In our just-released Stock Market Outlook report, we provide\ninsight on how to focus on the facts and hard data. This report contains some\nof our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces 2021 optimism?<\/em><\/li><li><em>Zacks forecasts for the remainder of the year<\/em><\/li><li><em>Zacks ranks industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>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!&nbsp;<br> <strong><br>IT\u2019S FREE.&nbsp;<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_09_13&amp;content=stock_market_outlook_report \">Download the Just-Released September 2021 Stock Market Outlook<\/a><sup>2<\/sup><\/strong><\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p>Looking ahead, investors should weigh how different factors\ncould affect earnings relative to expectations, and also how interest rates may\nmove relative to expectations. With this in mind, I have three risks to monitor\nfor the rest of 2021. <\/p>\n\n\n\n<p><strong>Risk #1: Sticky\nInflation Puts Upward Pressure on Rates<\/strong><\/p>\n\n\n\n<p>Inflation has been running hot this summer, and prices have arguably\nbeen moving higher and faster than many expected. Consumer prices (CPI) rose 5.4% in July 2021 from July 2020, which marked\nthe highest 12-month jump since 2008. The May CPI increase of 5.0% also raised\nplenty of eyebrows. <\/p>\n\n\n\n<p>We know from parsing\nthe inflation data that food, energy, and items like used cars, freight\nexpenses, and \u2018reopening\u2019 items like airline fares are having an outsized\neffect. But rising producer prices are also worrying corporations, and much-needed\ncommodity inputs like copper, aluminum, and nickel are feeling sustained price\npressures.<sup>3<\/sup><\/p>\n\n\n\n<p>All of these price pressures exist, and yet we have the\n5-year forward expected inflation rate moving sideways since April: <\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2_pic1-3.png\" alt=\"\" class=\"wp-image-9837\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>Policymakers continue to insist that inflationary pressures\nare \u2018transitory,\u2019 and the market appears \u00ad\u00ad\u2013 <em>for now \u00ad<\/em>\u2013 to be confirming the Fed\u2019s stance. But the risk to watch\nin the second half is if inflation is stickier than some expect, which could\nput pressure on the Fed to speed up the tightening cycle and ultimately put upward\npressure on longer duration U.S. Treasury bond yields. If interest rates go up\nfaster than expected, it could spell volatility for stocks \u2013 particularly in\nhigh valuation categories.<\/p>\n\n\n\n<p><strong>Risk #2: Rising Costs\nand Souring Consumers Put Pressure on Margins<\/strong><\/p>\n\n\n\n<p>This risk is tied to corporate earnings and the factors that\nmay cause earnings to come in lower than expected in Q3 and Q4. We know the\nDelta variant is causing problems in many parts of the country, and the latest\nUniversity of Michigan consumer sentiment print shows it may be weighing on\nconsumers:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/pic2-2.png\" alt=\"\" class=\"wp-image-9838\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>5<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>There\u2019s a possible scenario where rising costs and souring\nconsumers can put some pressure on profit margins, at a time when the market is\nlargely expecting corporations to continue to post strong recovery-like\nnumbers. A scenario where corporations need to adjust earnings estimates\ndownward \u2013 or a scenario where a higher-than-expected number of corporations\nmiss \u2013 could weigh on stocks. &nbsp;<\/p>\n\n\n\n<p><strong>Risk #3: The World Ex-US\nUndergoes Restrictions and Shutdowns<\/strong><\/p>\n\n\n\n<p>The United States has a relatively high vaccination rate and\nmore than enough vaccines for the entire population. The rest of the world, and\nin particular emerging markets, has the opposite. <\/p>\n\n\n\n<p>The risk here is that out-of-control cases and\nhospitalization rates could lead to economic restrictions and more shutdowns in\ncountries critical to global trade. We\u2019ve already seen issues tied to this risk\n\u2013 a surge of cases in Malaysia has added to semiconductor supply chain woes,\nand even China is seeing significant slowdowns in factory and services activity\ntied to economic restrictions. China\u2019s gauge of construction and services fell\nto 47.5 in August, which moves it firmly into contraction territory \u2013 the first\ntime it has dropped below 50 since February 2020.<sup> 6<\/sup><\/p>\n\n\n\n<p>The\nworld is far from having enough vaccines to stem the spread of Covid-19 \u2013\nperhaps even years away. The question for the global economy and global trade\nis whether production and economic activity can keep moving, despite a pandemic\nthat\u2019s ongoing.<\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>The U.S. economy is expanding and will almost certainly\ncontinue to do so for the balance of 2021. What hangs in the balance, in my\nview, is whether corporate earnings can overcome the headwinds discussed in\nthis column \u2013 namely, margin pressures tied to rising input costs and a\npotentially skittish consumer as the pandemic roils on. <\/p>\n\n\n\n<p>The other side of the coin is interest rates, which most\nmarket participants expect to move higher this year. The question is, by how\nmuch? To date, rates have largely been defying expectations, which has been\ngood news for stocks. In the second half, continued inflationary pressures and\na Fed pivot into scaling back monetary stimulus could alter the landscape. Investors\nshould watch these factors closely and also remember that stocks, over time,\ncan act as an effective inflationary hedge. <\/p>\n\n\n\n<p>In addition to these risks, we recommend staying focused on long-term financial success. Keeping an eye on economic indicators and hard data that can positively impact your investments is a good start. Our&nbsp;<a href=\"http:\/\/go.steadyinvestor.com\/download-zim-stock-market-outlook-report?medium=motm_2018_8_26_zim&amp;term=2018_8_26&amp;content=stock_market_outlook_report\"><strong>J<\/strong><\/a><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_09_13&amp;content=stock_market_outlook_report \">ust-Released September 2021 Stock Market Outlook Report<\/a><sup>7<\/sup>,<\/strong> will give insight on how to do this!<br> &nbsp;<br>This report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces 2021 optimism?<\/em><\/li><li><em>Zacks forecasts for the remainder of the year<\/em><\/li><li><em>Zacks ranks industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>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!<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Economic growth appears likely to continue, but headwinds include inflation, consumer sentiment and pandemic woes <\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-9836","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9836"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9836\/revisions"}],"predecessor-version":[{"id":10315,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9836\/revisions\/10315"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9836"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9836"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}