Q3 Fundamental Forecast: Stocks to Enjoy Economic Recovery

Dow Jones, S&P 500, Nasdaq 100 Talking Points:

The Dow Jones, S&P 500 and Nasdaq 100 indexes entered the third quarter and performed strongly again in the post-pandemic era. Stocks in all sectors continued to rise. As the broader economic recovery is expected to provide a modest boost for the major indexes, stock investors will have to negotiate concerns about seasonality, changes in monetary policy and infrastructure spending, while trying to determine what will drive stock valuations in the next quarter Fine details.
The overall stock outlook is largely conducive to improving earnings, and seasonal headwinds may try to restrain price movements and delay upward attempts. Since 1990, the S&P 500 has experienced some of the lowest trading volumes in July, August, and September; if there are any signs at the end of the second quarter, if there are no new catalysts, price movements in the market may dry up.

Chart 1: S&P 500 Average Monthly Returns & Average Monthly VIX

SPX average vs volume and vix

Source: Bloomberg

In any case, lower volume and volatility are not entirely bearish factors, but if a breakout does occur, they can make price breakout and follow-up more difficult.