In today’s Steady Investor, we dive into key factors and current events that we believe are influencing the current market, such as:
Lumber Prices Plunge from Highs – We have written in this space before about the rising costs of raw goods and commodities in 2021, including the cost of lumber. Any reader who has made a trip to the Home Depot in the last couple of months has likely seen these rising costs first-hand. The cause is fairly straightforward: in the throes of the pandemic last year, many lumber mills and homebuilders were anticipating a prolonged recession, much like what we saw in the 2008-2009 financial crisis. Demand plummeted. But as we know today, the economic recession was ultimately very protracted, and housing was arguably the least affected sector. In fact, housing prices and home project demand soared, pushing lumber prices higher. Lumber futures skyrocketed, ultimately reaching a record $1,711.20 in May. Eventually, however, supply started to catch up, and lumber futures have fallen some -42% from highs. Lumber producers who had been hoarding lumber are now offloading it to try and secure an attractive price, which is helping to correct some of the supply and demand imbalances in the market. Even still, lumber prices are elevated from recent history, and robust demand in the housing market is likely to keep them above historical averages.1
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With real estate prices souring and cryptocurrencies gaining popularity, many investors may be fearful of a bubble forming. To help you understand how bubbles form and what you can do to prepare for one, we have created our guide, Tulips, Dotcoms, and How Market Bubbles Form.
In this guide, we look back at previous market bubbles throughout history and explore the question, Is there a bubble forming, and if so, is it destined to burst soon? We believe that examining past bubbles can help investors understand how they form and when they can get dangerous.
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The End of a Long-Simmering Trade Dispute – For 17 years, the United States and the European Union have been embroiled in a trade dispute, though much of the tension has been masked by an overall good economic relationship. The dispute has been between the two biggest aircraft manufacturers in the world: U.S.-based Boeing Co. and EU-based Airbus SE. At the center of the dispute was the U.S.’s objection to Airbus receiving government subsidies, giving the company a competitive advantage over Boeing. The result was tit-for-tat tariffs that have arguably hurt bottom lines for both businesses. This week, however, it was announced that the U.S. and EU agreed to suspend tariffs for five years, as the two sides agreed to set aside the dispute temporarily in a joint bid to confront a bigger issue: China.3
Don’t Over-Analyze the Fed’s Two-Day Policy Meeting – Federal Reserve Chairman Jerome Powell’s press conference this week made a splash in the financial media, but we would argue its advertised importance—and ultimate impact—is overblown. Much was made of the Fed slightly raising its inflation forecast for 2021, while also signaling the expectation to raise rates by late 2023. There was also the matter of tapering bond purchases, which the Fed Chairman provided few specifics on – other than to say the Fed will be meeting to discuss it soon. In other words, the Fed is largely maintaining its dovish stance, and they remain more concerned about employment than they do inflation. At the end of the day, however, we would argue that the financial media and pundits alike place far too much importance on Fed statements. A common worry is that Fed tapering and eventual rate hikes will doom the bull market, but this fear is not validated by recent history. When the Fed started to taper and raise rates in the previous cycle, the market experienced volatility but continued its longer-term upward trend. Fed statements may be meaningful to short-term traders, but for long-term investors, they matter far less.4
Retail Sales Fell 1.3% in May. Is the U.S. Consumer Losing Steam? – Consumers cut back on spending a bit in May, with retail sales falling by 1.3% from the previous month. A closer look at the data shows that consumers softened purchases of big-ticket items, like cars, furniture, and building materials, and instead deployed their dollars in the services sector with spending on hotels, restaurants, and bars. Americans also spent more on clothing and beauty products, signaling a pivot to smaller ticket items geared to re-engaging in public. Online sales also fell slightly, as consumers made their way back into stores. Even though retail sales in aggregate fell slightly on the month, it is important to note that spending is already well past its pre-pandemic high. Businesses are hiring quickly and scrambling to stock inventories to meet the demand.5
The market has seen a history of bubbles forming. And with real estate prices soaring and cryptocurrencies gaining popularity, you may be fearful of a bubble forming.
To help you recognize market bubbles, we created our guide, Tulips, Dotcoms, and How Market Bubbles Form6.
In this guide, we explore previous market bubbles throughout history to better help investors understand how they form and when they can get dangerous. If you have $500,000 or more to invest and want to learn more, click on the link below:
Disclosure