Conditions Are Perfect For An Extraordinary Third Quarter Stock Market

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Here comes the third quarter stock market, and it promises to be a winner. There is an exceptional coalescence of forces that are beginning to drive the U.S. economy.

The third quarter’s strong foundation will be built in July and August

The coming July/August company earnings reports and economic releases for the 2nd quarter 2021 will reveal a desirable growth pattern for both the 1st half of 2021 and a full year that no longer includes the ugly Covid-shutdown 2nd quarter of 2020.

Fortifying that information will be the busy summer activity observations that are already visible, thereby firming up the second half 2021 growth expectations.

All this information puts the stock market on a solid foundation.

[Worried that the stock market is overvalued? It’s not. In fact, it may be undervalued. Read “ An Issue Holding Back Investors: The Erroneous Belief That The Stock Market Is Overvalued“]

Now to the areas that could boost growth and optimism significantly…

The third quarter’s key month: September

In good times (like now), the stock market can get a real boost beginning on the day after Labor Day (September 7 in 2021). Wall Streeters return from their vacations, forget summer and turn their eyes to 2022. This year, that focus shift could produce good news.

Throughout the past months, the growth outlook has remained optimistic for 2022. On September 7, that new year will seem close.

Beyond growth forecasts, there are potential trends that can ramp up stock market interest considerably

Here are the trends:

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  • A buoyancy of spirit and a willingness to spend in all areas of the economy: governments, businesses, organizations and consumers
  • For businesses, a move from the we’re-all-in-this-together pandemic reaction to an individual strategy-based competitive operation
  • We’re already beginning to see the activity associated with that shift: Management changes, capital spending, restructuring, spinoffs, breakups, mergers, acquisitions, vertical integration to control supply and distribution chains plus horizontal integration to expand company strengths into new areas.
  • On the finance/capital market side, Wall Street will be busy aiding those that want to accomplish the activities above. Then there are the IPOs that will range from newly public companies (often from venture capital funds) to formerly public, longstanding companies currently held by private investors/funds. A lively stock market is just the environment that makes IPOs successful.
  • As to that lively stock market, it is just the thing to raise investor interest in stocks. Interestingly, the catalyst for returning conservative investors to the stock market may be the younger generations’ interest in stocks. Well, that and a rising market that stops being seen as risky.
  • A unique boost comes from the U.S. generally being ahead in the global pandemic recovery race. It is helping give U.S. companies a head start
  • A final driver has been described as a negative: Shortages – of resources, parts, labor and shipping. However, almost all demand can be filled by an alternate supplier, product substitution or simply waiting – that is, transferring the economic activity to the next period. Therefore, view those shortages as causing deferred demand fulfillment – not as a total loss. And that means the negative effect on the second quarter’s economy and business activity should be a positive boost in the third quarter.

The bottom line: A rising, optimistic -even exciting- stock market could occur in the third quarter

So many positive economy and stock market signs, with sound catalysts and drivers. As companies report their earnings, economic releases come out and Wall Streeters return in earnest on September 7, this stock market could be a significantly higher level by quarter’s end – maybe even with the Dow Jones Industrial Average above 40,000.