The immortal words of Buzz Lightyear from the Disney Toy Story movies ring true for many of us who perhaps dreamed of going to space when we were children. Now with advances in science and technology, this is becoming a reality, most notably with the recent craze of billionaires blasting themselves into space. The stock market has a similar attitude – very little can stand in the way of it continuing to rocket higher and achieve dizzying heights. Last week was no different as the market remained on its upward trajectory, reaching all-time highs. Delta variant concerns remain in the headlines, but thus far have not held back the market from shooting higher. Even with the quarterly earnings reports winding down, there was no shortage of market-moving events.
The Senate passed a $1 trillion infrastructure bill, which is now moving to the House. The impact this legislation will have on the economy is debatable since it should boost economic activity with further stimulus in the form of increased, but will also add to the national debt, inhibiting future growth. At this point, we feel the impact to the overall economy will be slightly positive, especially for those companies that benefit from infrastructure projects such as machinery and raw materials.
While the market indices reached all-time high levels, the rally has not been broad-based, with a divergence in performance between sectors and individual stocks. As the euphoria of the post-pandemic rally finally seems to be wearing off, fundamentals and valuations are coming back into the forefront. Sector and stock selection becomes increasingly important, which is why we spend countless hours conducting research to ensure our clients’ portfolios are optimally invested participating in stock market rallies while protecting against downturns.
One of the central themes we stress is how inflation will impact future spending power and investment portfolios. Last week the key economic releases were inflation-related with the Consumer Price Index (CPI) and Producer Price Index (PPI) both showing price increases at levels not seen in over a decade. The month-over-month increases in these numbers are slowing, which could be an indication the peak level of inflation was reached attributable to the post-pandemic recovery. However, it is worth mentioning that inflation remains at an elevated level and there are no signs it will be letting up anytime soon. We continue to stress the importance of preparing for higher prices, both in terms of individual income and spending as well as positioning investment portfolios accordingly to protect against inflation and capitalize on the opportunities it presents.
Included in the monthly inflation data releases from the Bureau of Labor Statistics (BLS) was CPI-W, which is a measure of the measure used by the Social Security Administration to calculate the annual cost of living adjustments (COLA). The change in CPI-W from a year ago was 6%, putting next year’s Social Security COLA on track to be one of the largest in decades.
The key economic releases this week include retail sales, capacity utilization, and housing, all of which should provide further clues on the strength of the post-pandemic recovery. The data released is from the previous month so any impact on consumer spending and retail sales from the recent coronavirus resurgence will not be reflected in this set of releases. We keep a close eye on housing data as it can be viewed as a barometer of consumer sentiment, as well as provide clues to any improvement in supply chain issues lingering from the pandemic.
At Secured Retirement, we continue our tireless work of maintaining a high-level view of the markets and economy while digging deep to research those assets and sectors we feel will benefit from current market themes so we can position our clients’ portfolios accordingly. Not everyone will have the opportunity to blast off into space during their lifetime, but when it comes to investing, we can shoot for the stars and should at least hit the moon.
Have a wonderful week!
Nathan Zeller, CFA, CFP®
Chief Investment Strategist
Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.
Office phone # (952) 460-3260