Weekly Market Insights: 5-20-21 - Stocks React to Big CPI Shift
Tyler and I both agree that at the moment, we are now seeing a full on “inflation” conversation happening everywhere you look. The inflation conversation is still bifurcated into transitory or longer-term camps. Tyler and I are now more in the longer-term camp than transitory based on the various data points that we are watching. Housing, pay-rolls, FED, manufacturers, purchasing and inventories, rents, etc.
Keeping in mind how cash, conservative growth, and traditional growth (US based) are all going to face undesirable results and how to solve for those AHEAD of time rather than just in time is our current focus. We have found a solution but have not yet finished our due diligence before allowing clients to have conversations around that as of yet.
We thought last week that we might be seeing the beginning of a correction, but we had some reversals, and so at this point, we are still awaiting a long-overdue correction. We have also begun to hear the FED talk about inflation and “raising rates” and then walking back the comments like they have in the past when they are trying to prepare the markets for what is coming so that when they finally do raise rates, the markets do not vomit all over the place in a panic. This pattern will likely continue into the future, in our opinion.
Till we speak again, enjoy your week and the hot weekend!
General Market Commentary
A surge in consumer inflation unsettled investors, leading to a turbulent week of trading on Wall Street.
The Dow Jones Industrial Average slipped 1.14%, while the Standard & Poor’s 500 fell 1.39%. The Nasdaq Composite index dropped 2.34% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 3.02%.1,2,3
The market has been troubled recently by building inflationary pressures. Investors are concerned that rising prices may hurt corporate profits and force the Fed to tighten its monetary policy sooner than anticipated. Worse, investors fear the Fed may have to react more aggressively if it waits too long to act.
After back-to-back losses, the retreat in stock prices culminated on Wednesday, following the release of the higher-than-anticipated Consumer Price Index (CPI) report.
Stocks managed to claw back some of the week’s losses with a Thursday-Friday rebound, sparked by investors doing some bargain hunting.
Consumer Prices Spike
Wednesday’s release of April’s CPI inflamed investors’ inflation fears, as consumer prices rose 0.8% in April and jumped by 4.2% year-over-year. These numbers were above expectations.4
April price increases were led by a remarkable 10% increase in used cars, with additional pockets of sharp increases, notably in transportation services and commodities. Perhaps equally concerning is that energy costs showed a decline during April, a price weakness that may reverse in the coming months.5
Core inflation, which excludes the more volatile food and energy prices, was up a more modest 3.0% from April 2020.6
This Week: Key Economic Data
Tuesday: Housing Starts.
Wednesday: FOMC (Federal Open Market Committee) Minutes.
Thursday: Jobless Claims. Index of Leading Economic Indicators.
Friday: Existing Home Sales. PMI (Purchasing Managers Index) Composite Flash.
Source: Econoday, May 14, 2021The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
This Week: Companies Reporting Earnings
Tuesday: Walmart (WMT), The Home Depot (HD).
Wednesday: Cisco Systems (CSCO), Target (TGT), Lowes (LOW), JD.com (JD), The TJX Companies (TJX), Deere & Company (DE).
Thursday: Kohl's Corporation (KSS), Ross Stores, Inc. (ROST), L Brands, Inc. (LB).
Source: Zacks, May 14, 2021Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
“Appreciation is a wonderful thing. It makes what is excellent in others belong to us as well.”
Keep These Tips in Mind When Selling a Home
If you are selling your home, you may be able to exclude the income from the sale from your tax return.
The first thing to consider is the home's ownership and use. To claim the exclusion, you must have owned the home for at least two years or the home was your primary residence for at least two years.
If you are selling your main home, you may also be able to exclude the gain from the sale up to $250,000 from your return for single filers and up to $500,000 on joint returns. If you own more than one home, you can only exclude the gain on the sale of your main home. If you experience a loss when you sell your home, though, this loss isn't deductible. You can also choose not to claim the exclusion, in which case you need to report the gain on your tax return.
Some taxpayers must also report forgiven or canceled debt as income on their tax returns. This can include foreclosure or other processes where a lender forgives or cancels mortgage debt on the home.
Not sure what to report when selling your home? Publication 523, Selling Your Home can help.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7
Tips for Keeping a Gratitude Journal
Keeping a gratitude journal is a great way to practice giving thanks for even the small things in life. We all have things that we're thankful for and regularly recognizing them helps us stay present and gracious.
Looking to start a gratitude journal? These tips will help you get started and love the practice.
The first thing to do is to get some beautiful stationery and pens that make you happy every time you look at them.
Once you have some good materials, start with a prompt. Most people who are just starting a gratitude journal don't know where to start. Using a simple prompt will help get your gratitude juices flowing.
When thinking about things you're grateful for, focus on depth over breadth. Rather than list a number of small items, go into detail about the things you're more grateful for.
Try subtraction, not just addition, when thinking about things you're grateful for. Reflect on what your life would be like without these things.
Don't overdo it and burn yourself out. It might be more effective to journal once or twice a week rather than every day, especially as you build the habit.
Keeping a gratitude journal is about forcing ourselves to pay attention to the good things in life we'd otherwise take for granted.
Tip adapted from Greater Good Magazine8
A girl has as many brothers as sisters, but each brother has only half as many brothers as sisters. How many brothers and sisters are there in the family?
Last week’s riddle: I'm tall when I'm young and short when I'm old. What am I? Answer: A candle.
A Striped Marlin in Magdalena Bay, Baja California Sur, Mexico.
Footnotes and Sources
1. The Wall Street Journal, May 14, 2021
2. The Wall Street Journal, May 14, 2021
3. The Wall Street Journal, May 14, 2021
4. CNBC, May 12, 2021
5. U.S. Bureau of Labor Statistics, May 12, 2021
6. U.S. Bureau of Labor Statistics, May 12, 2021
7. IRS.gov, December 15, 2020
8. GreaterGood.Berkeley.edu, November 17, 2011
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The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
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