In this report, we have listed topics we feel are important for you to note, recognizing our ongoing diligence and oversight over the same and how they relate to your needs. We will touch upon the issue of inflation, briefly. However, we feel it could be the most important topic in the future and is something that most people minimally understand. We are in the process of writing several briefs of different lengths and depths about inflation, its potential causes and effects on the economy and markets, and planning for it. Stay tuned!
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What’s on your mind?
You keep asking, when is this tremendous run up in the markets going to end? Everything seems to continue to go up even after some negative days. While this is great news, are we in a bubble? Is inflation temporary? Will interest rates stay low?
- For now, it looks like the good times will continue! We believe the shorter-term outlook is very positive for both the economy and the markets. However, as history provides guidance, we should not become complacent and expect this to continue indefinitely. Economic data could change. As mentioned above, our biggest concern going forward is the potential impact of inflation.
- The best practice is to be prepared for all types of economic conditions as they eventually change like the seasons. Make sure you weatherproof your portfolios and your financial plan. Talk to us if you are unsure.
- Address your priorities and concerns with planning. As well, stay focused on your goals and revisit your portfolio allocations, periodically.
- With the possibility of income tax increases in the next year or so, we believe it is a great time to talk to us about tax strategies. One general example is a Roth conversion while specifics will relate to your particular planning needs.
- At MGFS, we are monitoring economic data with a keen attention to inflation and monetary policy along with jobs, profits, payroll, and GDP growth and interest rates, among others.
- Remember that markets go in cycles, both up and down. It is normal to experience volatility. When downside volatility happens, stay calm and do not overreact. Do reach out to us anytime your financial objectives or timelines change. Also, please let us know when you are feeling anxious or worried about the economy or the markets.
- We always advise that you should tune out the noise about market or economic headlines from the media, friends or family, no matter how well intentioned they are. In many instances, the news is over-dramatized and evokes fear and emotion.
- Many of you know already that we search for and use quotes that we feel are applicable. Here is a good one that we like that can be applied to so many areas in life but as financial advisors we are using this in the context of dynamic markets and financial planning: “I am not afraid of storms for I am learning how to sail my ship.” (Louisa May Alcott)
Overall, the indicators are bullish for stock prices. Remember, though, pullbacks are common and should be expected. The markets will never react in a linear manner.
Please ask yourselves if you’ve reviewed your portfolios and plans with us recently; if you have anticipated expenses or considered your evolving needs over the next few years? It is best to proactive rather than reactive!
- Congress may be getting closer to an agreement on an infrastructure bi-partisan compromise bill.
- As of this writing, according to NPR, there have been approximately 320 million doses of Covid-19 vaccines administered in the Unites States with 151 million people who are fully vaccinated.
- UBS announced that they will allow around two-thirds of its staff to mix working from home and the office (source: WSJ). This may be the future trend for many other large and small firms around the globe.
- Baseball stadiums across the country are returning to full capacity. That is positive news! Play ball!
- According to Fed chairman Jay Powell, interest rates are projected to remain low for the foreseeable future, perhaps until 2023. Low interest rates will continue to drive economic expansion, keep the bond markets stable and will help the stock market.
- The Fed is continuing to buy $120 billion worth of bonds every month, pumping massive amounts of money into the economy. This has also helped to elevate stock prices.
- According to economist Brian Wesbury, average hourly wages have increased at a rapid 6.4% since February 2020 while companies across the nation are looking to fill approximately 9.3 million open jobs. One major reason there are so many open jobs in this rising wage environment is that the government is still giving out unemployment benefits that far exceed what an employee could make from working. From President Biden’s comments earlier this week, it appears these benefits along with others are intentionally influencing more employers to pay higher wages.
- Fiscal stimulus has been replaced by a naturally recovering economy from businesses continuing to open up after the economic shutdowns.
- Supply chain shortages with many industrial and consumer products are significant. This comes from countries around the globe shutting down their economies and keeping people from work. While driving up costs for goods and services and creating delays with full recovery, re-employment will take time.
- It appears the economic recovery is accelerating in the second quarter. We are hearing preliminary data indicates that real GDP growth in the second quarter may come in around 6.5%.
- Other economic indicators continue to surge such as new home sales, new orders for durable goods, vehicle sales, and commodity prices. Retail sales remain strong year to date.
- As another sign of a recovering economy, there are now approximately 2,000,000 passengers a day going through TSA checkpoints. Keep in mind that international flights are not fully operational. During the height of the pandemic, almost all travel was restricted. Pre-pandemic average TSA checkpoints serviced around 2,600,000 passengers per day nationwide. (Source: First Trust Portfolios)
- All of the rapid growth combined with an increasingly abundant supply of money is inflationary and is starting to lead to price inflation.
In our opinion, this excessive increase in the money supply and in government spending is a short-term positive but long-term negative. We are not in a bubble but at some point in the future, we will have to deal with the inflation that is being exacerbated by the Fed’s expansive monetary policy. With these increasing inflationary pressures, the economic and market stakes are higher. It is important to keep an eye on Fed policy and any changes that are made. We will continue to do so.
- For now, low interest rates and the rapid growth in the money supply is continuing to provide a tailwind to the markets. It looks like this positive momentum could continue for a while.
- With the economy growing quickly, first quarter reported earnings were 26% above the longer-term trend per economist Robert Genetski. These earnings are also helping to drive the markets up.
- Impressive benchmark year to date returns as of 6/29: S&P 500 – 14%; DJIA – 12.5% and Nasdaq – 11.4%.
Overall, the indicators are bullish for stock prices will continue upward. Remember, though, pullbacks are common and should be expected. The markets will never react in a linear manner.
Please ask yourselves if you’ve reviewed your portfolios and plans with us recently and if you have anticipated expenses or evolving needs over the next few years that would merit setting up time to discuss your financial considerations.
In the spirit of laughter and fun, and a tradition at MGFS, please enjoy the following jokes!
- A state trooper pulled alongside a speeding car on the freeway. Glancing at the car, he was shocked to see that the woman behind the wheel was knitting. The trooper lowed his window and yelled to the driver, “Pull over!” The woman replied back “No, it’s a cardigan!”
- A golfer is standing in the rain on a tee box overlooking a river and sees a couple of fishermen and then says to his partner “Take a look at those two idiots fishing in the rain.”
- My wife is blaming me for ruining her birthday. That’s ridiculous, I didn’t even know it was her birthday!
- People who wonder if the glass is half empty or half full are missing the point. The glass if refillable.
- I don’t always go the extra mile, but when I do it’s because I’ve missed my exit.