June 2021 in Review

Daniel Zeigler, CFP, CMFC, Portfolio Manager

Hi everyone, this is Dan Zeigler, Portfolio Manager at Midland Wealth Management. Today I just wanted to provide a quick recap for the markets for the month of June and for the first half of the year.

The equity market continued its impressive run in the month of June and for the first half of the year as stocks remain near record highs. Cyclical value companies were significantly leading growth companies this year. However, for the month of June, growth companies have made up ground as interest rates remain stable and inflation concerns faded. Large-cap growth is up close to 6% for the month versus large-cap value which is slightly negative 1.5%. Energy companies continue to be the leader for the year up about 43% and close to 3.5% for the month of June. Small-cap stocks were up close to 2% this month and are up about 17% for the year. When looking at the first half of the year, the S&P 500 is up close to 13%. It certainly does not seem like there has been much volatility on the surface. However, when you dig deeper, it is clear that most sectors have experienced rotating leadership this year with about 40% of the S&P 500 companies seeing a 10% or greater decline from their recent highs.

Investors may be slowly moving away from the early phases of the recovery and are beginning to focus on mid-cycle [investing] strategies, which should include a combination of value and quality factors.

Corporate earnings growth for the 2nd quarter are estimated to grow by about 62% year-over-year. This would mark the highest earnings growth rate reported by the S&P 500 index since the 4th quarter of 2009. The 2nd quarter will likely be the peak for earnings growth; however, earnings should remain strong throughout the year and will likely be more than 20% above their prior peak.

We continue to monitor stock valuations as they do remain on the high side compared to historic standards. The forward 12-month P/E ratio for the S&P 500 is around 22.4, which is above the 5-year average of 18x. Future earnings growth may lead to lower valuations in the future.

As we head into the second half of the year, it will be certainly difficult to match the returns from the first half as various stimulus programs begin to fade, including unemployment insurance which is set to expire in early September. Despite these headwinds, stocks should continue to offer opportunities in the latter half of this year as the economy continues to reopen. There may also be an infrastructure deal as President Biden and a bipartisan group of senators announced an agreement on a roughly $1 trillion plan to improve the nation’s physical infrastructure.

Thanks for joining me for this month’s recap and I hope everyone has a great 4th of July weekend!