It was tough sledding on Friday, but it wasn’t just mega cap growth names as Energy and Financials tumbled hard as well.
To see the chart, click here.
S&P 500 Index | -0.54% | |
Communication Services XLC | -0.34% | |
Consumer Discretionary XLY | -2.06% | |
Consumer Staples XLP | +0.17% | |
Energy XLE | -1.59% | |
Financials XLF | -0.79% | |
Health Care XLV | +0.09% | |
Industrials XLI | -0.19% | |
Materials XLB | +0.41% | |
Real Estate XLRE | +0.32% | |
Technology XLK | -0.07% | |
Utilities XLU | -0.84% |
Inflation Debate
The inflation debate continues to heat up so much that it’s one of those rare times a word is being tossed around as much on Wall Street as it is on Main Street.
Interestingly, lawmakers that have spent months playing scientist, and flip flopping on their own advice when it comes to Covid19. Now donned in economists’ hats, they have taken to the airwaves to tell folks not to fret about inflation, because its transitory.
I think a lot of it is, but a lot is sticky, and for those folks in middle- and lower-income households, each transient day will feel like forever. Beyond the debate over how sticky or flexible inflation is, it’s a good time to look into the roots in order to figure out how to curb it and how to protect your portfolio.
Demand (Pull) – too many dollars chasing too few goods
- Growing Economy
- Increased Export Demand
- Government Spending
- Inflation Expectations
- More Money in the System
When looking through this lens, it’s pretty easy to see why so many are concerned with all the excess cash that’s been pumped into the economy, and how much continues via transfer payments, and other government schemes.
Government spending is already on a record pace but could shift to an even higher gear with the passage of the $3.5 trillion plan that just will not go away.
To see the chart, click here.
Inflation expectations for the next 12 months are through the roof:
- 4.8% from 4.2% Conference Board
- 4.8% from 4.0% New York Fed
- 4.7% University of Michigan Consumer Sentiment Survey
Cost (Push) -inflation without demand increases
- Higher wages
- High raw materials cost
The other part of the inflation issue are higher raw materials costs, which are exacerbated by supply chain issues. Wages are also moving higher, although mostly on the lower end of the economic ladder – sadly inflation is eating up those would-be wage gains in real life.
Monthly Changes | April | May | June |
Income | -5.8% | -4.2% | -3.0% |
Spending | +25.5% | +15.0% | +9.2% |
Source BEA
Raw Materials
The CRB index just keeps rolling along higher and higher. While everyone was watching lumber lurch into freefall, other commodities didn’t follow, including most of the twenty-four components of the CRB.
Watch the Ten-Year yield, which had a strong line of support last week.
Next Olympic Sport?
How will the market react to the 2,500-page infrastructure plan? I’m not sure ,but Materials acted great last week, and I think everyone should have exposure.
Portfolio Approach
There are no weighting changes this morning to our Hotline Model Portfolio, but we added back 4 stocks to our Current Buy List. If you are not a subscriber to our Premium Hotline Service, email Info@wstreet.com to join today.
The futures are pointing to a positive open.