Welcome to the final four months of 2021 — which is looking an awful lot like the final few months of last year. For investors, these are the major economic trends that could drive the direction of the stock market:

Inflation: Prices are rising across nearly every category of goods — putting pressure on both consumers and companies.

• “Cost inflation remains a prominent risk. We realized major cost increases last fiscal year in virtually all of our materials and finished goods…” — Jerald Dittmer, Flexsteel Industries.
• Watch for: If inflation gets out of control, the Fed could be forced to taper (i.e. remove the economy’s life jacket) — an event that triggered a market sell-off in 2013.

Supply chain issues: Companies continue to struggle with restocking inventory and supplying the parts they need — with rising Covid cases in Asia leading to recent closure of a major port.

• “We expect back order levels to remain elevated with moderate improvements in our inventory levels through the balance of the year.” — Julie Whalen, Williams-Sonoma CFO.
• Watch for: With the holiday period coming up, investors will be paying attention to the potential impact of shortages on retail sales.

COVID (and WFH) isn’t going away: COVID cases are increasing and companies are once again delaying return-to-office mandates.

• But here’s what’s different… Despite the rise in cases, more than half of workers are already back in the office — according to a survey by Morning Consult.
• Watch for: Stocks benefiting from WFH (i.e. cloud software, cybersecurity) pulled back in recent months but could keep benefiting as companies go fully/partially remote.

Labor shortage: Businesses are struggling to hire despite high unemployment rates. This made supply chain issues even worse, exasperating the shortage issue. But in recent weeks, some companies are seeing a shift in the hiring environment…

• “The unemployment benefits, etc. start to come off, we are seeing more applicants and able to source the people that we need.” — Tom Greco, Advance Auto Parts CO.
• Watch for: Unemployment benefits ending this weekend — which should help with hiring.