Why it matters: Stocks have rallied almost unabated for over a year, leaving many to wonder if the market is overdue for a big selloff. Last week's declines amplify those concerns.
Catch up quick: The transition to a new president was anything but smooth, but it happened. Fiscal stimulus has been passed, vaccines are being administered widely and the U.S. economy has been surging.
What to watch: There are two big dynamics to monitor in the second half, Credit Suisse strategist Jonathan Golub tells Axios.
- First, how long does the demand for goods and services outstrip supply, keeping inflation hot?
- And second, what is the path to a more normal pace of growth?
- Persistent inflation and a disorderly slowdown are a recipe for market volatility.
- Credit Suisse's Golub is bullish, predicting the S&P will rally to 4,600 by year-end amid what he calls a “benign deceleration” in growth. That's where the economy cools to modest-but-healthy growth and the market generates modest-but-healthy returns.
- RBC strategist Lori Calvasina is more cautious, telling Axios she sees "a little more room for stocks to move up but not a lot." We could see "a meaningful pullback during the second half, amounting to as much as 8%-9%," she says.
- Among other things, Calvasina cautions that measures of investor sentiment and positioning are at levels that signal the market has peaked — and is about to slide.
- Similar to Calvasina, she warns in a research note that investor sentiment is near-euphoric, but also notes wage inflation and potential tax hikes could hurt earnings.