By: Andrew T. Gardener, CFP®

Now that summer is here, we see a path to normalcy coming quickly with stadiums allowing full capacity, restaurants filling up, and vacations in full swing. Meanwhile, the U.S. economy continues to recover quickly and the stock market is near all-time highs. Although there are many positives, a lot of this good news could very well already be priced into stocks. Companies are having trouble finding workers, while higher consumer and raw material prices have many wondering whether this means the Federal Reserve is behind the curve and will need to quickly tighten monetary policy to stave off inflation. Add to that higher taxes and more deficit spending may be on the way, causing a lot of factors for investors to worry about. The U.S. economy continues to open up faster than even the most optimistic economists expected at the start of the year. Much of this is due to COVID-19 cases hitting new lows and restrictions being lifted across our country. The U.S. economy has likely already recovered all of its lost output from 2020, with U.S. gross domestic product (GDP) expected to grow close to 10% in the second quarter of 2021 (source: Bloomberg). As of now, this year is on pace to be the best year for GDP growth since the early 1980s, bolstered by fiscal and monetary stimulus. First-quarter earnings season is over, and it was simply amazing. The percentage of S&P 500 companies beating earnings per share targets (87%) was the highest that earnings data aggregator FactSet has ever recorded. Overall earnings estimates for 2021 have increased 12% this year, right in line with the return from equities. Strong economic growth and massive stimulus has also brought with it major worries over the economy potentially overheating. You are likely seeing higher prices when you go to the grocery store or fill up your car. Problems filling jobs and supply chain issues are adding to the inflation pressures on top of the pent-up demand coming through as the economy fully reopens. Although these concerns are real, longer-term inflation should come back to trend. Technology, globalization, the Amazon effect, increased productivity and efficiency, automation, and high debt are among the major structural forces that have previously put a lid on inflation—and will likely continue to do so. The next several months are historically the most volatile of the year for investors and we wouldn’t be surprised to see that happen once again. Rather than trying to time the market, the most appropriate defense is to maintain a diversified allocation commensurate with your goals and risk tolerance. If you have any questions or would like more information, feel free to contact us at your convenience.

Written by: Andrew T. Gardener, CFP® and David C. Stuyck