• Earnings Extravaganza? :More than one third of the entire S&P500 will report earnings this week (180 companies). According to FactSet, the June earnings that will be reported are on track to rise 74% year-over-year, which would be the largest growth increase since the last quarter of 2009. Regardless of the optimism, however, the sheer volume of reporting creates an opportunity for surprises and potentially increased volatility.
• Faster and Faster: Over $900 billion has been added to US mutual funds and ETFs in the first half of 2021. This is a the highest inflow of capital since 1992 and is more than the amount of money put into all other areas of the world combined during this same time period. Expectations are that the US economy will grow faster than many developed and emerging markets this year. Additionally, recent performance has skewed investors towards the American market. From 2009-2019 global stocks only returned 5% annually when US equities were excluded but over 10% annually when included.
• Under Pressure: The increase in Delta virus cases and multiple natural disasters are adding additional pressure to already-constrained supply chains. For example, many Asian countries have prevented ships from offloading sailors to rotate crews. This is creating issues for shipping routes, which are responsible for 90% of world trade. In addition, recent flooding in Germany and China have further impeded economic activity, leading many to believe it may take longer for inflationary pressures to go away.
• Solid and Boring? Many investors are beginning to look to bank stocks for safe and reliable income. Not only does the SPDR S&P Bank ETF provide a yield of 2.3% but it also provides exposure to a sector that emerged from the pandemic largely unharmed. In comparison, high yield bonds currently provide 4.6% yield, with significantly higher default risk and potentially lower long-term appreciation.