Stock Outlook, GDP Forecast, and the Week Ahead, for Week Ending 06/25/2021

Flying low and losing altitude.

Last week, the stock market ended lower than expected, and with more volatility. The S&P 500 lost almost 2% for the week, as the VIX spiked sharply, following comments by some FOMC members, including Chairman Powell, last Thursday. The comments indicated the Fed was moving up its timeline for raising interest rates, as I addressed on Friday. The Fed confirmed that it had put a hard ceiling on inflation, as markets expected, though that ceiling now appears a bit lower than it did a week ago.

This is not good news in the context of will likely already be a weak recovery after the initial pickup in activity during this reopening period. The average expected NGDP growth path fell nearly a tenth of a percent, as reflected in the fall of the S&P 500 index. It remains at about 4%, with real growth less than 2%. Somewhat looser monetary policy would result in a higher mean GDP growth path. NGDP growth of 5% would be closer to optimal.

What does this mean for investors? For the week ahead, I don’t expect much change from the current flat-to-down trend in stock prices and NGDP growth expectations. Given these headwinds, stocks with a combination of uniquely strong growth prospects and solvency can still overcome. One example is Tesla, which is still a growth stock with strong prospects, but solid balance sheet.

Note: As always, this shouldn’t be taken as investment advice, as it isn’t tailored to individual circumstances and I’m no longer a registered investment advisor.