Despite some bumps in the road, 2021 has mostly looked like a recovery for the U.S. economy.
As life looked a little more normal, spending has ramped up and investor confidence has grown. In the first quarter of 2021, the S&P 500 recorded a 52% growth in earnings, which is higher than we’ve seen in more than a decade.
Additionally, 86% of S&P 500 companies reported that their actual first quarter earnings per share (EPS) was higher than their expected EPS, a figure that FactSet reported as their highest metric yet.
The S&P 500 is also reporting a Q2 net profit margin that would be the second-highest since 2008 – at about 12.4%.
The overall view of the stock market and the economy is a positive one, but let’s look more closely at other important metrics.
Employment and Labor Recovery
The unemployment rate has improved steadily since its 14.8% peak in April 2020. It currently sits at 5.8 percent, a number that is expected to drop throughout the year.
We’ve seen the labor force recover in 2021 as vaccines have been distributed, kids have gone back to school and people have returned to their pre-pandemic routines.
The May Jobs Report was a bit disappointing because it showed that the unemployment rate isn’t improving as quickly as was hoped. But there are other markers – how many people are quitting their jobs, for example – that are getting back to pre-pandemic levels. This shows that people have enough confidence in the economy to believe that they can find another job quickly.
The bottom line is that the labor force will recover. The question is how long that will take.
Asset Class Returns
At home, asset class performance was a mixed bag. Small caps didn’t perform as well as large caps, but performed better in emerging markets.
Image via Dimensional
U.S. stocks had positive returns in Q2, and outperformed developed and emerging markets internationally. Value stocks didn’t grow as much as large cap stocks, but they did do better than small cap stock growth. Small caps did underperform large caps.
Image via Dimensional
Globally, developed markets marked positive returns. Large caps performed better than small caps.
Image via Dimensional
Emerging markets didn’t perform as well as U.S. and international developed markets, but still posted positive quarter returns. Small caps did better than large caps, and value performed better than growth.
Image via Dimensional
What’s going on with inflation?
You see it in the cost of gasoline, airfare, houses and cars: inflation.
For the past decade, the inflation rate has held pretty steady at around 2 percent. But right now, it’s hitting about 5 percent. The Fed has explained that this is to be expected, because inflation was too low in 2020.
So while inflated prices popping up everywhere should be temporary as the economy re-adjusts, keep an eye on your expenses. And if you’re in the market for a major purchase, like a house, you might want to wait until things calm down.
About Michael
Do you need help planning for your financial future? Contact me today to set up a meeting to talk about your goals. You can also download my free ebook for physicians for tips and information about getting your finances on track.