Pro Perspectives 8/20/21

August 20, 2021

Despite the health crisis and geopolitical noise surrounding stocks, the S&P 500 finishes the week less than 1% off of record highs.

The tailwinds continue to overwhelm the risks.  

Tailwind #1 for stocks:  Second quarter earnings season is winding down, and haven't disappointed.  We were expecting big earnings beats.  We got it.  About nine out of ten companies beat estimates, with earnings growth of better than 90% (compared to the same period last year).

Tailwind #2 for stocks:  The House will return to Capitol Hill next week, to rubber stamp $4.5 trillion of government spending (spending intended to stimulate and transform the American economy).

Tailwind #3 for stocks: The Fed, while setting the table for an exit of emergency policies, will continue to promote ultra-easy financial conditions for at least the better part of the next year.  They've pivoted from the "easy forever" stance, but they are far from slowing down the train of 6%-7% growth, at this point.  Market interest rates close the week at just 1.25%. 

Tailwind #4 for stocks:  What was a headwind a month ago, has now become a relative tailwind.  Oil prices are 19% lower than a month ago. That underpins consumption and, if anything, softens the inflation picture – at least for the moment.  

With the above in mind, the dips in stocks have been shallow thus far, in 2021.  We’ve had a 6% decline, and a couple of 5% declines.


While a correction may be due for stocks, remember, the corrections in the post-financial crisis era have tended to be fast.  Risk enters quickly, and the slides can be sharp.  But it has paid to buy the dip.  The recoveries have been very quick and lucrative, along the way over the past 12 years – mainly because the Fed has continued to position itself to backstop stability and confidence — and stocks play a key role in those goals