With all the recent headlines surrounding the current state of the market and increased interest rates, we are taking a deeper dive into key factors that we believe investors should keep an eye on, such as:
Hotter Temperatures, Higher Air Conditioning Bills – It’s the summer season, which almost certainly means a heat wave is heading your way sometime in the next couple of months. What many readers may not know is that a higher air conditioning bill is likely coming, too. In the U.S., electricity prices rose 12% over the past year, and signs point to even more increases ahead. One of the key drivers behind higher prices for A/C this summer is the war in Ukraine, which has sent natural gas prices soaring. About 40% of electricity generation in the U.S. comes from natural gas. According to a study by the National Energy Assistance Directors Association, the average American family can expect $540 in electric bills between June and August, which marks an increase of $90 from just a year ago. That’s a slightly higher than 15% increase in a year’s time, which also comes at a time when just about every other good and service costs more.1
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Wages and Spending are Up in the U.S., But There’s a Catch – A historically tight labor market may offer some respite to higher electricity bills and higher prices at the pump and the grocery store. Just about any American who wants a job can find one, and wages have also been on the rise. In the last year, wages have grown at a year-over-year pace of 4% each month. But it’s also true that over the same period, inflation has exceeded 4% in each month – meaning that there has not been a month with “real” year-over-year wage growth. The same catch applies to consumer spending – Americans are doling out more for goods and services in the economy, but they are consuming less than they did a year ago. Again, the culprit here is inflation. In a more recent example, gas prices are up 60% but sales at gas stations are up 50%, signaling that Americans are driving less. There has been one exception in the spending category, however – restaurants. Spending in June at restaurants is up 14%, but prices were only up 8%.3
The Private Sector Has Now Recovered All Jobs Lost in the Pandemic – The saving grace of the U.S. economy has arguably been – and continues to be – the jobs market. The private sector in particular has seen impressive and sustained growth in employment. Now, just over two years following the pandemic, all of the 21 million jobs that were lost have been recovered. The biggest growth within the private sector has been in transportation and warehousing jobs, which is directly tied to consumers shifting purchases to goods online. The same goes for manufacturing, construction, and retail, all of which have benefited from the shift in spending from services to goods.4
Europe Worries That Russia is Poised to Cut Off Natural Gas – European countries are getting nervous. This week, the Nord Stream pipeline that carries gas from Russia to Germany closed for annual maintenance, but Germany and other European countries are worried that Russia won’t turn it back on once the maintenance is complete. Such a move by Russia would deal a major blow to European economies, which rely heavily on Russian gas that arrives via Nord Stream. Should Russia decide to pump less natural gas or turn off the pipeline permanently, it could have cascading consequences across the EU. Natural gas is used in German factories to make raw materials, plastics, and other chemicals critical to its manufacturing infrastructure. EU leaders and in particular German leaders are preparing for this possibility. Plans are being put in place to prepare for rationing into the fall and winter, which seems almost certain to put additional upward pressure on prices and strains on supply chains. If Germany experiences a recession as a result, the effects could be felt across Europe and globally.5
These events can affect the economy in many different ways. As we wait to see how the market will be impacted, there are things you can do to protect your investments and create a retirement portfolio that meets your financial goals. To help you do this, I recommend reading our guide, 7 Secrets to Building the Ultimate DIY Retirement Portfolio.6 It provides a step-by-step blueprint of our customized investing process to potentially help you build a sound retirement portfolio of your own and pursue long-term investing success.
If you have $500,000 or more to invest, get this guide to learn our ideas on the step-by-step process to building and maintaining a retirement portfolio that will potentially help you reach your goals and enjoy a secure retirement.
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