What’s Next for the Stock Market?

It’s been a year and half since Covid-19 began its destruction across the globe, and since then the stock market has been a volatile ride of peaks and valleys. With societal shifts and lockdown restrictions taking place, new trends have emerged in the international markets. The chaos that has ensued from the virus has led to substantial changes to inflation, interest rates and government spending across the globe, which, in turn, has influenced the stock market. As such, volatility was high in 2020 as stocks in international markets took massive leaps upwards and huge spirals downwards. So, what has the first half of 2021 meant for the stock market, and what’s next?

Beginning of 2021

In the stock market, the first two quarters of 2021 saw many stocks hitting record highs, and the likes of indices rising by double digits to hit all-time highs. While some strategists warned of a pullback, this has yet to be seen as the market has continued to rise throughout the year. Bank of America head of global economic research Ethan Harris said it came down to “Strong growth, strong earnings, low interest rates, [and] a bond market that’s been lulled to sleep. The bond yields aren’t really reacting to inflation news.” Currently, stocks are on the rise because investors are also counting on a growth rate of 40% for profits. The S&P 500 closed the first half of the year out 15% higher, according to Goldman Sachs, and the Dow Jones Industrial Average rose as well. Thethree major benchmark indices all increased by double digits over the first half of 2021, which tells the story of the stock market so far this year. The US economy is booming, which impacts both the US stock market and the international markets, and analysts from CNBC/Moody’s Analytics survey of economists’ forecasts have predicted a 10.4% growth in the market this year. However, can the markets continue on this trajectory, or will things slow down over the second half of the year?

What’s next?

Many stocks are heading into the second half of 2021 at all-time highs, with economic recoveries well underway in many countries around the world. As more and more countries make strides in their vaccination programs and get control of the virus, economies could continue to strengthen over the next five months and this, coupled with strong earnings gains, means that many analysts have a positive outlook for stocks over the next few months. However, there are two large factors that could influence international markets, particularly the US stock market, in different ways over the second half the year: inflation and Federal Reserve policy changes. A possible increase in inflation and unemployment benefits coming to an end in September could spell more volatility in the stock market. Goldman Sachs forecasts an increase in US Treasury Yield from 1.43% to 1.9% by the end of 2021, which would impact stock prices. Goldman Sachs also predicts a rise for the S&P 500 by the end of this year, and a further 7% increase next year. Another huge factor which remains in play is, of course, the pandemic, which is still very much a part of our lives worldwide, and the current Delta variant is causing lockdowns and restrictions to begin again in many countries. However, people like Peter Boockvar, Bleakley Global Advisory chief investment officer remain positive, saying, “The market doesn’t care about the variant because it’s known the more we vaccinate, the more we can deal with it.” All in all, international markets could continue to gain strength as economies across the globe recover from the pandemic, however nothing is a given and it’s important for stock traders to keep up to date on the latest news and global events.