Macroeconomic Outlook: Optimism and Uncertainty Collide
In a Unique Environment, We Remain Tethered to Investment Policy
Tunnel vision paints a picture of optimism. During the second quarter, US GDP continued its steady climb, US equities continued to hit record highs, and job growth continued its ascent from pandemic-induced lows.
Yet, while we welcome burgeoning optimism, Chief Investment Officer Rick Pitcairn is looking more broadly at mixed signals fueling some apprehension. A far more contagious Delta variant is finding susceptible hosts worldwide, accounting for nearly all new US COVID-19 cases, and injecting added volatility into markets.
"Unenthusiastic bull" and "fully invested bear" are two monikers that capture market unease while still conveying a continued preference for stocks. Our August 2021 Macroeconomic Outlook makes sense of competing narratives in a still-strong market environment.
- Economic growth, rising corporate earnings, low interest rates, and transitory inflation pressures support further equity appreciation, yet we believe a near-term correction would support long-term market health.
- US stocks outperformed non-US in the second quarter. It may take slower US growth or a weaker dollar for international stocks to curb US dominance.
- We continue to keep a keen eye on upcoming tax legislation, but do not expect draconian measures and recommend patience as negotiations play out.
- In a unique environment characterized by both optimism and uncertainty, it is prudent to maintain exposure to stocks, be mindful of risks, and adhere even more tightly to investment discipline.