Is Inflation Going to Keep Rising? News or Noise?!

Viewers, summer comes earlier and earlier every year.  No, I am In not talking about “climate change in Houston”.  I am talking about the very normal consumer discretionary and durable goods slowdown that has hit several stocks very hard the last few weeks. This is on the back of calendarizing the positive Covid purchasing affect they had a year ago as well as some supply chain bottlenecks beginning to ease.

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” This week’s topic is the headline news of a looming consumer goods led “summer slowdown”.

Why is it news?  It’s news because now the press is catching on to, we already thought about the economy for months.  What’s that? The rate of economic growth has peaked and is likely to slow more throughout the summer of 2022. Largely led by a peak in consumer goods spending while consumer service spending upticks.  Does that make it time to panic?  Does that mean it’s time to call your advisor and sell your entire portfolio of stocks which is supposed to be a tool for a long-term financial plan?  No.  Not if you have a diversified portfolio.

Some hard data series that confirm what we had been saying?  Broadly data like the Philadelphia purchasing managers index showed new orders peaking and missing estimates at 17.8 reported versus a number of 25.8 in March.  This is at the exact same time inventories rose to a 11.9 reading versus a .5 reading in March.  This shows a broad inventory build as demand slows.  That bad for the rate of change in summer economic growth in the United States.

Used car demand is plummeting. Home many times do you buy a used car during a pandemic, so you don’t have to ride on mass transportation or a Uber?  Housing demand is slowing as higher mortgage rates are choking off speculators and Spring Buyers.  iPhone and home computer sales are starting to slow.   But viewers, believe it or not this is very normal at this time of the year and much needed.  Why?

Because these things and demand for these goods, were the first signs that led the upturn in our inflationary impulse and pricing the last 18 months.  Slowing demand for these goods should be the first and earliest indicator that inflationary forces in our economy are starting to peak.  I repeat, starting to peak.  And remember viewers, the markets care about rate of change almost as much, if not more, than they do about level.  Recall viewers, the equity markets rocketed higher in 2q2020, against most strategist and commentary projections, as the economy went from disastrous on the Covid lockdowns, too horrible in summer of 2020 and continued much higher throughout fourth quarter of 2020 as we went to just “bad”.

Yes, inflation momentum, that’s rate of change, looks to have peaked.  Oil prices while high, continue to hover around $100-105 per barrel, not the $200 per barrel many projected as Russia invaded Ukraine.  Shipping container rate are down almost 30% from the peak in late 2021.  Used car pricing has declined -2.1% and -3.4% the last two months and used cars make up 4% of the CPI believe it or not.  Anecdotally, I am seeing more meat specials on the weekends at my butcher.  I can find brisket at half the price of only last summer now.  There were Easter sales of $3.5-$5 a pound for bone in prime rib.  Those specials were nonexistent 3 to 9 months ago.

Does it mean that the coast is clear, the Federal Reserve will stop talking hawkishly, and you can buy anything and everything in the stock market again? No.  However, it should mean that if you are a diversified investor, owning a little bit of everything, some growth stocks, some dividend growth stocks, and some boring higher yielding, low growth stocks, you and your portfolio are probably going to do better in the second half of 2022 than the first quarter of 2022.

Are you up in your equity account’s year to date?  Doubtful unless you are an undiversified 100% energy and commodities investor or trader.  Is it off to the races again? That’s highly unlikely.

As we have tried to stress since last November, that’s not what the first few quarters of 2022 should look like. Unfortunately, it should continue to remain a sloppy, choppy, mess in the overall equity markets through summer. However, these stories of cooling used car demand, slowing housing sales, and peaking shipping rates are definitely news to your investment accounts. Why? Because these are a few of the leading things needed for inflation to peak, the Federal Reserve to cool their interest rate increase talk, and lower sustained volatility to return to the overall markets later in the year.

Feel free to give us a call here to speak to one of our advisors.  Let us help you craft a financial plan that meets your retirement goals and needs first, and your greed’s second. Call us at (877) 896-0040 we are here to help you on your financial journey into and throughout your retirement years.

I’m Chris Perras and From everyone here at Oak Harvest have a great week.

News or Noise:  Newsworthy