3 Factors Driving Our Second-Quarter Market Outlook

April 9, 2021

By Tim Courtney, Chief Investment Officer

In our first-quarter market outlook, we noted we would be closely monitoring the vaccine rollout, interest rates and federal spending. All three boxes were checked, suggesting that the magnitude of the 2021 recovery was growing even stronger.

Vaccinations are keeping pace1, interest rates have increased significantly2 and we saw high levels of government spending3 throughout the first quarter. This has led consumers to become increasingly confident and markets have responded well to the news.4

As we look ahead to the second quarter, below are three key market drivers we will be keeping close tabs on:

  1. First-quarter earnings. The market has been higher over the last several quarters in anticipation of the economic recovery we are starting to see take shape.4 Now, markets want to see the bottom-line results. Thankfully, fourth-quarter earnings came in strong5, which helped the market sustain its run. Investors will want to see this momentum carry over into 2021 to ensure earnings are growing alongside the expected recovery.
  2. Hard data confirming strength. Over the last several quarters, economic numbers have generally improved. But there are still some areas that have remained weak. In the second quarter, we will want to see stronger engagement across the broader economy. Anecdotally, we have been hearing stories about greater economic activity over the last three to six months, as evidenced by things like longer lines at restaurants, fully booked flights and cargo ship traffic at ports. The market will need to see this reflected in hard data such as rising consumer spending, increased shipping activity, improving employment and overall economic acceleration in order to meet high expectations.
  3. The interplay of market pricing, government spending and debt. Now that additional stimulus has been passed3, talks are going to turn to how the U.S. will pay for it. One avenue we will be watching for is any proposed tax law changes to partially pay for increased spending. We will also be monitoring for any signs of weakness in the U.S. dollar. As mentioned, interest rates increased meaningfully in the first quarter, which made bonds more attractive for buyers, especially foreign investors in countries with negative rates. This helped stabilize the dollar6 and check potential higher inflation.7 Moving forward, we will be keeping a close eye on U.S. spending and debt to see how they could impact interest rates and the value of our currency.

For the most part, circumstances appear to be aligning for a great economy in 2021. The market has anticipated good numbers but investors will want to see this reflected in economic data and earnings.

If you have any questions, please contact your Exencial advisor.


1. NBC News (3/24/21) – 100 days of doses: How the vaccine rollout overcame chaos to be a point of pride
2. CNBC.com (2/17/21) – Interest rates will continue to rise, but don’t blame it all on inflation, economists say
3. CBS News (3/12/21) – Biden signs $1.9 trillion American Rescue Plan into law
4. Yahoo! Finance (data as of 4/7/21) – S&P 500
5. CNBC.com (2/12/21) – Cramer’s week ahead: Earnings season has been ‘far better’ than expected
6. MarketWatch (data as of 4/7/21) – U.S. Dollar Index
7. US Inflation Calculator (data as of 4/7/21) – Current US inflation rates: 2000-2021

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

The US Dollar Index is used to measure the value of the dollar against a basket of six world currencies – Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona. The value of the index is fair indication of the dollar’s value in global markets.

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