In today’s Steady Investor, we take a look at key factors that we believe are currently impacting the market, such as:
Inflation Ticks Higher, Again – High U.S. inflation readings seem to be the only economic indicator making headlines these days. In June, the CPI print showed acceleration at a pace not seen in 13 years, with the Labor Department reporting a 5.4% jump from a year ago. When energy and food were stripped out (Core CPI), the reading was still a stout 4.5%. These numbers are far higher than the Fed’s targeted 2% to 2.5% range for inflation, but readers should note that the so-termed ‘base effect’ is still in play. The ‘base effect’ says that inflation readings are high because they’re being compared to a year-ago period when the global economy was largely stifled by the pandemic. In this sense, inflation readings over the summer may not give us a clear picture of how sustained price pressures could be, and we may need more time to fully understand the inflation picture. After all, when comparing this June’s CPI print to June 2019, inflation rose by 3% – an elevated, but much more acceptable figure.1
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The 4 Big Categories of Rising Inflation – Staying on the hot topic of inflation, it is also important to note that not all inflation is created equal. In fact, we may be best served to see it in four distinct categories. The first one is the category most impacted by the ‘base effect,’ i.e., those goods and services that fell the most during the pandemic. These are airfares, hotel prices, concert tickets, and so on. We should reasonably expect a big jump in these prices, and it should also be noted that even in the June reading these prices remain below where they were last February. The second price category is for items that have surged past their pre-pandemic levels due to supply chain bottlenecks and unexpectedly high demand, i.e., used cars, lumber, semiconductors, and other inputs. The third category is for prices we might reasonably expect to remain higher more permanently, such as housing prices and wages. These are categories where demand outweighs supply, and it may take some time for the two to find balance. Lastly, there are the goods and services where we are yet to see material price increases, such as home rents or small business services being pressured higher by wages.3
Job Openings are at Record Highs, But May Not Last – Some readers may have seen the stat-lines recently: there are more open jobs in the economy than there are unemployed workers. Indeed, job openings are at a record high today, but there are still sticky issues in the labor market such as too low wages, issues with child care, and expanded unemployment benefits that last through September in some states. But the record rate of job openings should not be expected to last – many companies are predicting they will need fewer employees in the future, as the pandemic laid bare some of the new efficiencies that can be ushered in by technology and automation. Across industries like hotels, restaurants, warehousing, and aerospace, companies are investing in digital infrastructure and automation technology to ‘do more with less.’ Case in point: in the U.S. economy, total output has recovered to pre-pandemic levels, even though fewer workers are working fewer total hours.4
China’s Q2 GDP Growth is Strong, But Many Worry About Deceleration – China reported second-quarter GDP growth of 7.9% in the second quarter and remains on track to meet its annual 6% GDP growth rate. But some analysts worry that the rapid rebound in growth is not sustainable in the face of slowing global demand for Chinese goods and less investment in manufacturing and real estate. China’s economic recovery is also somewhat unbalanced – while manufacturing and exports power the recovery forward, domestic demand has faltered. The opposite has been true in the United States, at least for now. Factory activity is robust while domestic demand is so strong that it’s outweighing supply, placing upward pressure on prices as detailed above.5
The economy and markets are changing quickly, and it’s important for investors to know how to navigate through the ups and downs. For those nearing retirement, it is critical to build a portfolio that meets your financial goals. Doing so involves some work: defining your investment objectives, determining your asset allocation, and actively managing investments over time.
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 Zacks Investment Management’s customized investing process, which can guide you to building a sound retirement portfolio of your own.
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. Our goal is to help you reach your goals and enjoy a secure retirement.
Disclosure