In today’s Steady Investor, we focus on current events and factors that we believe are currently shifting the market, such as:
U.S. Trade Deficit Soars to Record – The U.S. balance of trade measures how much the country imports versus how much it exports. A trade deficit indicates more imports than exports, and a trade surplus indicates the opposite. In 2021, the U.S. trade deficit hit a new all-time high of $859.1 billion, having increased 27% from last year. Some believe that trade deficits are negative since the country is buying far more goods and services than it is selling. But that is not necessarily the case – what matters is total trade, which gives the most accurate indication of whether economic activity, on the whole is increasing. It is – U.S. exports also soared last year by 18.5%, reaching $394.1 billion. As the U.S. economy continues to rebound from the pandemic and expand further, total trade is rising – a good sign. Robust global demand for goods like computers, furniture, apparel, energy, and food are driving trade activity higher.1
How to Use a Volatile Market to Your Advantage!
It’s a challenge for investors to manage market volatility. Volatility can result in discomfort, fear and uncertainty, but as we wait for volatility to ease, we recommend that investors learn about the positives that can come with volatility.
If you have $500,000 or more to invest, get our free guide, “Using Market Volatility to Your Advantage” and learn our insights, based on decades of experience, about how a volatile market may be able to help investors refine their strategies and potentially generate solid returns over time.
Download Our Guide, “Using Market Volatility to Your Advantage”2
Inflation Pushes Even Higher, to a 40-Year High – Inflation keeps going up. In January, the consumer price index (CPI) jumped at a 7.5% annual rate, which placed it at a 40-year high. For the last five months, inflation has been running at a 5% annual rate or higher, as continued strong demand bumps up against supply constraints and labor shortages. Every month, the CPI rose 0.6% from December to January, consistent with the monthly increase from November to December. Breaking down the inflation figures, it was the usual suspects driving prices higher. Used-car prices soared 40.5% in January from a year ago, and energy prices also continue to chart higher with a barrel of crude oil topping $90 a barrel. Food prices also increased 7% year-over-year in January, the largest increase since 1981. Inflationary pressures are expected to wane as supply constraints ease and as consumers shift spending to services from goods, but it may be a few months still before inflation rates come down.3
Are Rising Interest Rates Good News for Savers? Not necessarily. The Federal Reserve has telegraphed their plans to increase the fed funds rates likely a few times in 2022, and many savers were hoping that would also mean earning higher deposit rates at banks. But that may not be the case. Generally speaking, banks will raise the interest they pay on deposits when they are trying to build up cash reserves, which they can in turn use to finance loan activity. But in the current environment, banks are not strapped for cash – at all. Because of bank reserve requirements in the aftermath of the 2008 Financial Crisis, combined with Americans’ boosting savings in the pandemic due to stimulus checks, banks are flush with cash. Total deposits at U.S. commercial banks stand at $18.1 trillion, which is substantially higher than the $13.3 trillion they had on hand before the pandemic in early 2020. As it were, banks have little incentive to raise the interest rates they pay on deposits, at least for now.4
The Jobs Market is Even Stronger Than Many Thought – As has often been the case in the last few months, the U.S. jobs numbers as originally reported were way off. The Bureau of Labor Statistics changed its estimate for how to account for seasonal patterns as part of monthly employment, given the effects of the pandemic. The result has been a substantial underreporting of job growth in the U.S. economy. Employment in January grew 467,000 from December, which was three times Wall Street’s official consensus. But the big revision came from the November and December 2021 figures. December job growth was revised from 199,000 to 510,000, while November was changed from 249,000 to 647,000. The Omicron variant certainly led to snags in the labor market with people out sick in January, but the job growth over the previous few months has been staggering and adds to an overall strong 2021. The labor force expanded by 1.2 million in December, and labor force participation ticked up to 62.2%, the highest rate since early 2020.5
The Silver Linings in a Volatile Market – It may be hard to find the silver linings in this current market, but that doesn’t mean they aren’t there. To help give you additional insight into how you can make the most of turbulent times, I recommend reading our guide “Using Market Volatility to Your Advantage.”6
This guide can help you learn about our insights, based on decades of experience, about how a volatile market may be able to help investors refine their strategies and potentially generate solid returns over time.
You’ll get our ideas on how market volatility can “shake up” complacent investors, why volatility may help prevent overheating and market “bubbles” and more. If you have $500,000 or more to invest, download this free guide today by clicking on the link below.
Disclosure