Release Date: August 12, 2021
FNBO Releases Mid-Year Investment Update, Providing Economic Outlook for Second Half of 2021
—Equities, Interest Rates, Inflation, Housing Prices and COVID-19 Variants Among Topics Addressed in Report—
OMAHA, Neb. August 12, 2021—First National Bank of Omaha (FNBO) has released the FNBO 2021 Mid-Year Investment Update. Prepared by FNBO’s Investment Management division, the report provides an evaluation and outlook of the economy, liquidity, corporate earnings and stock market for the second half of 2021.
“In the second half of this year, we expect a similar macro-environment to the first half and tactically favor equities over fixed income. Within equities, we continue to favor U.S. equities over international equities based on the strength of the U.S. economy and excess liquidity. Our expectation is economic growth may moderate somewhat later this year from the 6% level but remain in the 3–4% range,” said Kurt Spieler, Chief Investment Officer, Investment Management, FNBO.
The report is divided into four sections of economic analysis:
- STRONG ECONOMIC REBOUND: FNBO expects spending to recover in the second half of the year due to the pent-up demand for travel, leisure activities, and dining. The potential services recovery offers upside for additional consumer spending, and the outlook for consumption is strong as individuals have high levels of cash. Further, housing prices are expected to moderate but remain supportive of economic growth.
- LIQUIDITY: FNBO views liquidity as a function of Federal Reserve support and government spending. The Federal Government is likely to maintain a substantial budget deficit, supporting economic growth. In June, the Fed adjusted their first interest rate hike to be in late 2023. They plan to wind down the pandemic-era corporate bond buying program and later this year may provide guidance on tapering the monthly purchases of Treasuries and agency mortgage-backed securities.
- CORPORATE EARNINGS: All economic sectors are participating in the recovery. As of June 30, profit growth of 23.1% is expected over the next 12 months. Growth in company profits are supporting the stock market appreciation, as investors are optimistic about the economy and corporate earnings environment. When combined with low interest rates in the short-term, profit growth can justify the high valuations.
- OUTLOOK AND STRATEGY ADJUSTMENTS: The economic expansion will lead to a continuation of strong corporate profitability with positive earnings results. FNBO expects liquidity to remain high with the federal government and Federal Reserve supporting the economy. With likely higher economic risk in 2022 and premium stock market valuations, however, equity gains may be limited.
Potential risks to continued U.S. expansion are high unemployment, greater than expected inflation and interest rates, and the possibility that vaccines could prove ineffective against COVID-19 variants. In addition, the report notes that the economic recovery has been uneven across industries, income and demographic groups.
“Market adjustments in all asset classes are occurring more rapidly, shrinking the window to capitalize on investment opportunities. As a result, investing for the long-term in a diversified portfolio is even more critical for investment success. Finding the right asset mix for your portfolio is a personal decision based on goals and risk tolerance,” added Spieler.
The full report—which provides additional insights, data, analysis and disclosures—is available here.
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