Stocks were nearly flat on Wednesday morning as investors wait for the Fed's policy decision. Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,572,000. This is 3.6% above the revised April estimate of 1,517,000. Single-family housing starts in May rose 4.2% to 1,098,000 from April's revised figure of 1,054,000. The Dow fell 0.1%, the S&P was flat, and the Nasdaq was up 0.1%. Crude oil traded near $73 per barrel, while gold rose $4 to $1860 per ounce.

Recent economic data illustrates that conditions are improving, though serious risks remain. The primary driver of GDP over the next few quarters is likely to be the country's physical health, as the nation recovers from COVID-19. Elsewhere, the employment environment is in better shape than it was a year ago (though still far from strong) and consumer confidence is improving. We expect that rising confidence will lead to continued growth in consumer spending. Auto sales have recovered, and the housing market remains strong, even as interest rates tick higher. Businesses are again expanding. Our GDP model now calls for a 2.1% increase in absolute GDP in 2Q21 from 1Q21, which translates to an annualized gain of 8.9%, up from our prior forecast of 8.8%. We expect further improvement into 2H21. On an annual basis, we look for overall GDP growth of approximately 5.7% in 2021 and 3.7% in 2022. Our estimates are consistent with consensus forecasts and the outlook from the Federal Reserve, which call for growth of 4%-6% in 2021. The GDPNow forecast from the Federal Reserve Bank of Atlanta is 10.3% for 2Q21.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

As we approach the midpoint of 2021, and as we have pointed out many times this year and at the end of last year, index and sector outperformance has flipped 180 degrees. Year-to-date (YTD), the S&P 500 has tacked on 11.6%, the Dow Jones Industrials and the NYSE Composite have added almost 15%, the Nasdaq has gained 5.6%, and the Nasdaq 100 (QQQ) is up 5%. Meanwhile, the S&P Mid-Cap 400 has jumped 18%, the Russell 2000 (IWM) has leapt 15.7%, and the S&P Small-Cap 600 (SML) has catapulted 23%.

The stock market moved higher last week, with technology stocks outperforming blue chips. During Friday's session, the Dow Jones Industrial Average increased 65 points, or 0.19%. The S&P 500 was up 0.08%, and the Nasdaq Composite was up 0.09%. For the week, the DJIA was up 322 points, or 0.94%, the S&P 500 was up 1.16%, and the Nasdaq Composite was up 2.06%. Year-to-date, the DJIA is up 12.82%, the S&P 500 is up 11.93%, and the Nasdaq Composite is up 6.68%.

The S&P 500 hit four areas of support on Wednesday and bounced. They include chart support from the recent low; the 50-day average; trendline support off the lows since October; and trendline support (former resistance) off the peaks since February. The 21-week EMA is down at 3,973, while lateral chart support lies near 3,980. A 38.2% retracement of the rally since March targets 4,040, while a 50% giveback is near 3,980.

Inflation: Out of the Bag?

Often overlooked amid gyrations in the stock market is dividend income, which is an important element of total return. Between 1930 and 2012, dividend income accounted for 42% of total return of the S&P 500, according to Hartford Funds. And that's just the average. In some decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for 15%-20% of returns. Still, in 2018, dividend payments softened the blow when most market indices declined as the Federal Reserve hiked rates. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks.

Stocks fell again on Tuesday on continued inflation fears. The yield on the 10-year Treasury rose to more than 1.62%. On the employment front, the Labor Department's Job Openings and Labor Turnover Survey (JOLTS) showed that U.S. job openings rose by 597,000 to a record 8.1 million as of March 31. The data again highlighted the tight labor market for companies seeking to fill jobs in a recovering economy, and the potential impact of government stimulus programs in limiting the supply of workers. The Dow fell 1.3%, the S&P 0.9%, and the Nasdaq 0.1%. Crude oil traded near $65 per barrel, while gold rose $1 to $1838 per ounce.

This edition features the coming corporate tax hike; U.S. support for vaccine patent waiver; Macao gaming; and notes from Zillow, CarMax, and Square.