The US economy powered forward faster than nearly anyone had expected in the first half of 2021. As we were writing our Outlook for 2021 in late 2020, our economic views were significantly more optimistic than consensus forecasts—but in retrospect, not nearly optimistic enough. Our theme was getting back on the road again and powering forward. But as the economy accelerates to what may be its best year of growth in decades, power has been converted to speed and we’re trading highways for raceways.
Speed can be exhilarating, but it can also be dangerous. Traffic becomes a test of nerves. Turning a sharp corner creates added stress on drivers. Tires wear, and engines can overheat. As we look ahead to the second half of 2021, and even into 2022, we see an economy still on the move before it slowly starts to settle back into historical norms. The speed is thrilling and the overall economic picture remains sound, likely supporting strong profit growth and potential stock market gains. But the pace of reopening also creates new hazards: Supply chains are stressed, some labor shortages have emerged, inflation is heating up—at least temporarily—and asset prices look expensive compared to historical figures.
Markets are always forward looking, and in LPL Research’s Midyear Outlook 2021: Picking Up Speed, we help you keep your eyes on the road ahead. We focus on the next 6-12 months, when markets may be looking at which latecomers to the rally have the strength to extend their run, and whether there may be new beneficiaries of the global reopening. But smart investors are always looking even further ahead, beyond the next curve, next lap, or even next race. Sound financial advice remains the key to durability. So buckle your seatbelt and tune up your portfolio. The next stretch may be a fast one with new risks to navigate, but it’s still just another step toward meeting your long-term financial goals.
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