As always, I want to thank you all for being such great clients and friends. Let me also thank you all for trusting me to help pursue your financial security and with your hard-earned money. Many of you have trusted me with new investments this year and many have helped me and their friends and loved ones by providing referrals. For that vote of confidence, a special thank you.
What a crazy year and a few months that we have had. In second week of March 2020, our country started going into lockdown due to one of the most dramatic events ever to occur. Today, I am fully vaccinated, and I am sure that most of you reading this are as well. Recently, my wife and I have eaten indoors at a couple of our favorite restaurants. We also booked a vacation after 2 years of not having gone on one. I have visited more than a few stores and see people not wearing masks. Finally, we seem to be getting back to normal or close to it. My sense is that most people are feeling comfortable with this.
So far this year, we have seen a dramatic change of leadership in our country. The first few months of 2021 have been vastly different than prior years. The last few weeks have pointed towards a change in yet another direction. As I said in the last newsletter, since February, inflation has become the big market trigger.
A couple of themes have been playing out recently.
The market, controlled more than ever by computer programs called algorithms, is so worried about inflation that it is moving interest rates higher ahead of any FED changes. Many growth stocks are reacting to the higher rates and have declined from highs and many investors have been focusing more on value stocks recently. Today, algorithms manage more money flows than due to the large presence of passive investment products. In addition, value stocks like retail, energy, and travel are seeing larger revenue growth and earnings growth year over year due to subdued pandemic numbers a year ago which is attracting investors.
All the news reports on inflation, reports on jobs numbers, changes in the Consumer Price Index (CPI) or when Federal Reserve board members comment publicly, supply information about inflation that move the markets. Most folks know that the rate of inflation is higher when compared to this time last year. What needs to be answered is whether this period of increased inflation is temporary or not.
First, people are going back to work. As more people get vaccinated and the economy opens more people are being hired especially in the travel and hospitality sector. Covid unemployment is ending this month in many states and in September on a national level so people may have to find jobs rather than sitting at home collecting unemployment benefits. Many companies are raising wages and offering bonuses attracting people back to work. Finally, as children can go to camp and school parents will be able to go back to work. As this all happens, more products are getting to market, reducing the demand supply ratios which cause prices to increase. Second, there is an old saying that “prices fix prices”. As prices rise for items such as lumber and new and existing homes, demand softens resulting in lower prices. We have seen this already reducing inflation.
In conclusion, it seems to me that most inflation may be temporary. This means that interest rates should come down or not move higher as quickly as the market expects and growth stocks could do better than value in the future.
Please call me to review your account returns for the year and please let your friends and family know about me.
Thank you very much.
Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.
The information provided, including references to market sectors are for general informational and educational purposes only. No comments referenced herein should be construed as a recommendation of any kind or investment advice.
Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time and cannot be guaranteed. Actual results could differ materially from those anticipated. Please consult your financial advisor before making financial decisions.