Hello, I hope all is well and that you and your family are staying safe and healthy.
Inflation remains top of mind for investors as we enter June with the Consumer Price Index (CPI) up .8% to 4.2% from a year ago. This is the largest 12-month rise since the annual period ending September 2008 . The most significant price increases have been in gasoline and used automobiles. Despite broadening evidence of price hikes, increases such as the 10% uptick in airfares between March and April are a natural result of our country “reopening” and should be viewed as such. Inflation concerns remain hotly debated. It’s difficult to tell if the price increases are a lingering effect of covid driven plant, production, and manufacturing shutdowns, or a more serious result of a decade plus of easy money government policy. It is also important to remember we remain in a trade conflict with China which has also impacted manufacturing. This discord has led many to believe that the Fed may have to raise rates earlier than they would like, which added to the ongoing volatility in the markets in May. The Nasdaq which hit its all-time high of 14,175 on February 16th entered a correction declining as much as 13% to 12,397 on March 5th, then rallying in April and again correcting in May . This year has had a similar story for the Russell 2000 which corrected nearly 10% between February and March, rallied in April and has continued its correction in May. Although the market has been inconsistent in its reaction to inflation fears, there is little doubt that the economy is strengthening. Nowhere is this more prevalent than corporate earnings. As of May 14th, with 91% of the companies in the S&P 500 having reported earnings, an astonishing 87% beat their earnings expectations and 77% beat their revenue expectations for the first quarter of 2021 ! Interestingly, while technology has been under the most pressure this year as far as stock performance, those companies led the way as far as earnings and revenue performance in Q1 with 95% beating their earnings expectations and 93% beating revenue expectations. This is a reason I continually share that investing should be done with a long term view and why I am a firm believer in comprehensive financial planning that diversifies your portfolio across asset classes in a thoughtful and strategic manner. Think about Amazon, for example. Before the dot.com bubble, on December 9th, 1999 Amazon hit a high of $113 a share. Then the recession hit. Amazon fell to as low as $5.91 on October 1st, 2001 . As of May 27th, 2021, Amazon is at $3,230 a share. Those who maintained a long term view have been handsomely rewarded.
I remain optimistic about the second half of this year. We are continuing to see increasing numbers of Americans becoming fully vaccinated and our country is well on its way to reopening. Jobless claim numbers have been improving and people are energized and enthusiastic about living life, traveling, seeing family and friends, and spending money. All of this is contributing to a robust corporate earnings environment which I believe will remain exceptionally strong this upcoming quarter. I remain diligent in monitoring inflation data, the Fed, global response to Covid-19, unemployment and other economic indicators as well as government legislation, all of which will play a role in determining how the markets perform in coming weeks and months. A broader market correction in the Dow and S&P 500 remains a possibility as most asset classes are priced for near perfection. I believe the Federal Reserve and Central Banks around the world will maintain a very facilitative approach and even if the Fed Funds Rate must be increased to contend with inflation, I anticipate the increase will be nominal. Ultimately, as the Fed and Government scale back their support for the economy, which will happen, the market will correct to levels that better align with the reality of where corporate earnings and valuations are. As we get to the other side of this process, we may see a booming economic growth period driven by our unequalled innovation, determination and belief in one another as Americans!
Thank you for the opportunity to serve you. My priority remains and always will be to ensure that you continue to receive high quality guidance and a client service experience second to none. While I continue to reach out via phone and e-mail, please know that I am available via Zoom, Facetime, any other digital technology you prefer and in person if you would like to meet. I am happy to meet with you at any one of my 3 offices or at your home or near your home, whatever you prefer and whatever you are most comfortable with. Please contact me anytime with any questions, clarifications, or concerns. Wishing you, your family, friends, colleagues and community continued hope, health and positivity in the coming weeks, months and beyond!