Hello all – we hope you had a nice April.
It was another good month for stocks as the markets keep chugging higher. The Dow rose 2.7%, the S&P 500 added a solid 5.2%, and the Nasdaq did the best with a 5.4% gain.
It was another good month for stocks as the markets keep chugging higher. The Dow rose 2.7%, the S&P 500 added a solid 5.2%, and the Nasdaq did the best with a 5.4% gain.
The steady rise in the market over the last year has many worried that a pullback is due. Indeed, there are some signs of froth we can point to. One example is investors becoming the most optimistic they’ve been in the last two years, which often happens at market highs.
Another sign is a large amount of corporate insiders selling the stock of their companies, which is also a sign that stocks are expensive.
However, we aren’t too concerned about a pullback at this point. We’ll discuss this more later in the commentary.
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We have a ton of charts this month, so this commentary will be less words and more pictures. This is good, too, since there wasn’t a lot of new news moving the markets this month.
Corporate earnings for the first quarter did make headlines and have been extremely solid, but they didn’t have much impact on the overall market. A year ago was the bottom in the pandemic, so year-over-year numbers will naturally look good. It’s how the future looks that is of interest to investors.
The markets keep moving higher more because of the Fed keeping its stimulus in place and the Biden administration announcing more government spending. This will have a boost to the economy - until the bill comes due and tax hikes take their bite.
Corporate earnings for the first quarter did make headlines and have been extremely solid, but they didn’t have much impact on the overall market. A year ago was the bottom in the pandemic, so year-over-year numbers will naturally look good. It’s how the future looks that is of interest to investors.
The markets keep moving higher more because of the Fed keeping its stimulus in place and the Biden administration announcing more government spending. This will have a boost to the economy - until the bill comes due and tax hikes take their bite.
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All this spending and money printing is leading to a lot of concerns about inflation, and we’ll spend the bulk of this commentary on the subject.
The inflation reports from the government do show inflation kicking in, especially for businesses (who have to decide if they will raise prices to cover the costs or keep prices low and cut into profits). Here's a look at the price index for businesses (the PPI):
We think the inflation story is much worse than advertised. Businesses are reporting large increases in prices and have discussed it during their earnings calls.
Below we’ll show charts of common expenses for businesses and you can see how the prices have jumped recently.
It’s not just these commodity prices that are rising, but the cost of employees is rising, too.
Businesses have to compete with the generous unemployment benefits from the federal government. The federal government offers $300 per week in unemployment, in addition to what is already provided by the state. In some states, an unemployed person can make over $6,000 per month (for example, the State of Massachusetts pays up to $1,234 per week). That’s pretty darn good. Plus there’s the stimulus payments, like the recent $1,400 and the $600 prior to that.
Because of this, businesses are having a hard time finding workers since people make more money on unemployment than they do by working.
The amount of job openings currently stands at a record high:
Businesses have to compete with the generous unemployment benefits from the federal government. The federal government offers $300 per week in unemployment, in addition to what is already provided by the state. In some states, an unemployed person can make over $6,000 per month (for example, the State of Massachusetts pays up to $1,234 per week). That’s pretty darn good. Plus there’s the stimulus payments, like the recent $1,400 and the $600 prior to that.
Because of this, businesses are having a hard time finding workers since people make more money on unemployment than they do by working.
The amount of job openings currently stands at a record high:
A record amount of businesses say they’ve had a hard time finding workers. Amazingly, 91% of respondents to a NFIB survey reported few or no qualified applicants to job openings.
Here’s a real-life example from Tampa, FL. A McDonald’s restaurant was offering $50 to people just to come in for an interview. The owner said it was the worst hiring environment he’d ever seen.
All these rising prices for businesses mean rising prices for the products we buy. Unfortunately for us, it’s not just those prices in the stores that are rising, but prices for nearly everything around us are rising.
Housing prices are at a record high:
Housing prices are at a record high:
Car prices are at a record high:
Gas prices are rising, too:
History suggests these price increases are just beginning. Inflation tends to rise when the government prints money, and we haven’t yet seen the spike in inflation to match the amount of money the government has printed.
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Switching gears to the economy, which continues to look solid.
Economic strength measured by the GDP report shows another solid gain, though it’s an easy measurement over a year weakened by the shutdowns.
Economic strength measured by the GDP report shows another solid gain, though it’s an easy measurement over a year weakened by the shutdowns.
Below are several other economic charts that all show an economy that continues to strengthen.
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Where does the market go from here?
As we mentioned earlier, the market does look a little frothy. While there may be some weakness in the short term, we don’t think a large decline is in store.
As we saw during the Obama administration, the consequences of bad economic policies are not felt when the Fed prints record amounts of money and keeps the markets inflated. We believe this will end badly, but no one can predict when that will be.
In the short term, we’d avoid putting new money in the broader indexes and instead look for undervalued individual stocks.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
As we mentioned earlier, the market does look a little frothy. While there may be some weakness in the short term, we don’t think a large decline is in store.
As we saw during the Obama administration, the consequences of bad economic policies are not felt when the Fed prints record amounts of money and keeps the markets inflated. We believe this will end badly, but no one can predict when that will be.
In the short term, we’d avoid putting new money in the broader indexes and instead look for undervalued individual stocks.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
