The Fed continues to battle rapid inflation as investors’ worries grow. In today’s Steady Investor, we are taking a deeper dive into key factors that we believe are impacting this situation and the future state of the market, such as:
Commodity Prices Decline Sharply from Peaks – The last few weeks have produced a sharp selloff in commodity markets, with everything from oil to soybeans declining in lockstep from early June levels and with most finishing the quarter in negative territory. Natural gas prices soared by +60% from the beginning of April but ended the quarter down by -3.9%. Over the same period, copper fell by -22% and lumber prices dropped by -31%, while wheat, corn, and soybeans all also finished the quarter lower than where they started it. Oil prices have also notably come off of early June peaks – a barrel of crude at one point traded above $120 a barrel. West Texas Intermediate, which is the benchmark oil for the U.S., closed below $100 for the first time since early May. Commodity prices are notoriously volatile and can be affected by everything from the weather to geopolitics, but there is also the possibility that markets are anticipating more challenging economic conditions from here – especially as central banks around the world tighten monetary policy in an effort to cool demand. Another key factor on the demand side is China, which continues to pursue its zero-Covid strategy and does not appear likely to meet its goal of 5.5% GDP growth in 2022. A slowing China means less future commodity demand, which could be pulling prices lower.1
Protect Your Retirement from Rising Inflation
As inflation rises, the one group that it’s affecting heavily is retirees. Rising inflation can be very costly for the economy, but there are steps you can take to keep your investments afloat.
Instead of panicking when emotions are high, take a look at steps that could help reduce the sting of inflation. To help, we’re offering our exclusive guide that will give insight on:
If you have $500,000 or more to invest, get our free guide, 4 Ways to Protect Your Retirement from Rising Inflation today!
Is It Possible to Have a Recession in a Strong Jobs Market? – The Atlanta Federal Reserve’s GDPNow forecasting tool estimates that U.S. GDP contracted at a -2.1% rate in the second quarter, which would mark the second consecutive quarter of contraction. This meets the technical definition of a recession, though whether or not the U.S. economy is declared to be in a recession depends on the National Bureau of Economic Research (NBER). Two consecutive quarters of output decline do not automatically trigger a recession declaration, as the NBER also considers factors like manufacturing activity and the labor market. But if Q2 GDP is indeed negative and the NBER confirms a recession in the first half of 2022, it would be vastly different from the past 12 recessions the country has experienced since World War II. In every postwar recession, economic output fell while unemployment went up. But that’s not what is happening now. Over the past six months, the unemployment rate has fallen from 4% to 3.6%, and there is a good argument that the jobs market today is more robust than it was before the pandemic. In the years before the Covid-19 outbreak – when the economy was largely considered to be in great shape – there were an average of 1.7 million Americans collecting federal unemployment benefits. Today, that figure stands at 1.3 million.3
Spending in the U.S. Continues to Decelerate as Inflation Pressures Linger – U.S. consumers appear to be growing increasingly wary of higher prices. According to the Commerce Department, U.S. household spending continued to tick higher in May but the pace of increase has fallen close to zero. Consumers are grappling with inflation at 40-year levels, with the CPI print in May showing prices went up at an 8.6% annual rate. Real-time data analysis from early June showed that credit and debit card spending figures fell further in early June compared to the end of May, as consumers hold back goods purchases and rethink travel and vacation plans. In many cases, consumers are starting to tap into savings accumulated during the pandemic to cushion the pinch of higher prices. According to JP Morgan, households still have a sizable cash cushion to work through compared to pre-pandemic, with checking and savings account balances of lowest-income households still 65% above 2019 levels.4
Don’t Let Inflation Destroy Your Long-Term Investments – If you are an investor, especially one nearing retirement, don’t panic over inflation! As stressful as it can be, there are steps you can take to prevent it from affecting your long-term investments.
To help, we’re offering our exclusive guide, 4 Ways to Protect Your Retirement from Rising Inflation5. You will get insight on:
If you have $500,000 or more to invest, get our free guide today!
Disclosure