The Long Term Investor

HEY......time on this forum is NOT......WASTED. LOL....just joking.

Yeah those billable hours are valuable....and.......they provide the basis of your investing. Your portfolio sounds similar to what I do.....since I start out any portfolio about 50/50 between the funds and the stocks. I LIKE your balance......that 5% gives you a bit of excitement....and a shot at some riskier holdings that might pay off big.

 

SO.....what if they released some BIG economic data and no one cared? Good to see that happen today....so far.

Consumer prices jump 5% in May, fastest pace since the summer of 2008

https://www.cnbc.com/2021/06/10/cpi-may-2021.html

(BOLD is my opinion OR what I consider important content)


"Key Points

• Headline consumer prices rose 5% year over year in May, the fastest pace since August 2008 and higher than Wall Street expectations.
• The 3.8% rise in the core inflation rate, which excludes food and energy prices, was the sharpest increase in nearly three decades.
• Surging used car car prices helped drive much of the inflation gains.
• Initial jobless claims totaled 376,000, a touch higher than the estimate.

Consumer prices for May accelerated at their fastest pace in nearly 13 years as inflation pressures continued to build in the U.S. economy, the Labor Department reported Thursday.

The consumer price index, which represents a basket including food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5% from a year earlier. Economists surveyed by Dow Jones had been expecting a gain of 4.7%.

The reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the financial crisis sent the U.S. spiraling into the worst recession since the Great Depression.


Though the inflation readings are well above anything seen since the 2008-09 financial crisis, the Federal Reserve has been largely dismissive of the numbers. Central bank officials believe the current rise is due to temporary factors that will abate as the year goes on and look higher because of comparisons to the year-ago period, when much of the economic activity remained restricted due to pandemic precautions.

Consequently, market participants generally do not expect to see the Fed react to the latest numbers when the policymaking Federal Open Market Committee meets next week.

“The strength in the top line indices was driven largely by categories that have been heavily disrupted by COVID and remain under pressure from supply chain disruptions,” wrote Eric Wingorad, senior economist at Alliance Bernstein. “The more persistent categories of inflation — the ones that do a better job of capturing the sustainable trend—are significantly more subdued. That means that the details of today’s print continue to support the idea that the spike in inflation is transitory, even if it is more intense than most forecasters (myself included) would originally have anticipated.”

Used cars and truck prices continued their climb higher, rising 7.3% on the month and 29.7% for the past 12 months. The new vehicles index increased 1.6%, its biggest-single month gain since October 2009 and was up 3.3% for the 12-month period, the highest move since November 2011.

However, the energy index was about flat for the month despite the huge runup in gasoline prices this year, while the food index repeated its April rise of 0.4%.

The gasoline index is up 56.2% over the past year, part of an overall 28.5% increase in energy during the period. Food prices have remained comparatively tame, up 2.2% for the 12-month period.

A separate gauge that excludes volatile food and energy prices increased 3.8%, vs the Dow Jones estimate of 3.5% for so-called core inflation. That was the fastest pace since May 1992.

Another report released Thursday showed that jobless claims for the week ended June 5 came in at 376,000. The estimate was 370,000. The total still marked the lowest of the pandemic era.


Investors, though, remain heavily focused on inflation, which hasn’t been a major threat to the U.S. economy since the early 1980s.

On a monthly basis, the headline CPI rose 0.8% while the core was up 0.7%. The estimate was 0.5% for both readings.

Markets largely shrugged off Thursday’s inflation report, with stock market futures indicating a gain at the open though government bond yields moved higher. The benchmark 10-year Treasury note last traded near 1.52%.

Prices surged across a variety of sectors as the economy continued to recover from the harsh restrictions government officials put in place during the pandemic.

Household furnishings and operations rose 1.3%, the biggest month-over-month gain since January 1976. Airline tickets continued their climb, rising 7% for the month and 24% from a year earlier as more passengers take to the skies. Car and truck rentals rose along with sales prices, jumping 12.1% to compound a 16.2% increase in April and rise of 110% from a year ago.

Shelter cost, which make up about one-third of the CPI, rose 0.3% for the month and 2.2% year over year. Within that group, an index that includes hotel and motel costs jumped 10% for the 12-month period.

Claims hit new pandemic-era low
While inflation was rising, weekly jobless claims were continuing to nudge lower.

The total of 376,000 represented a decline of 9,000 from the previous week and marks another low since the March 14, 2020, level that preceded an explosion in unemployment unlike anything the U.S. had seen.

Continuing claims fell considerably, dropping by 258,000 to a new pandemic-era low of just below 3.5 million. Around the same time a year ago, the total was 18.9 million.


The total of those getting benefits under all federal programs declined by 95,099 to 15.35 million, about half where it was at the same time in 2020. Enrollment continues to decline in pandemic-related programs as the September expiration of expanded benefits nears and as many states are curtailing their programs.

On a state level, big drops were recorded in Pennsylvania (-23,703) and California (-18,999)."

MY COMMENT

Ok.....we have data that is the worst since 2008.......WOW. So just 12 years ago we were at the same level....with a NORMAL economy.....not a re-opening from a closure of the entire economy. AND.....did we see any hyper-inflation back in 2008 when we had a higher number? NO....we experienced 12 years of a mild deflationary depression from 2008 on.

These numbers reported today are GENERALLY in line with what was expected......as the market reaction.....or rather....lack of reaction is showing. The unemployment numbers show the real DRAG that is on the economy right now as we STRUGGLE to re-open.

AND.....much of the inflation number is used car prices which are surging.....not something that I am really concerned about. This surge is totally TRANSITORY and DOES NOT reflect any real BROAD economic problem.

Add in the .......FACT......that these numbers are based on a comparison with the PEAK of the historic economic shutdown and you have one BIG......NOTHING-BURGER.

What....might....count in terms of inflation will be where we are when we are comparing a normal economy to a time when we had a normal economy. That comparison is not going to happen for many more months. AND.....obviously the Ten Year Treasury is NOT showing any sort of SHOCK from these numbers since it is LINGERING in the 1.52% range. This rate is something that would have been thought to be IMPOSSIBLE by the doom and gloom people a few months ago.

I like these CNBC articles on this sort of stuff.......they tend to NOT include all the hand wringing fear mongering and unwanted.......gratuitous opinion.....that most economic articles seem to always contain.

 

Here is another take which reflects some of the market reaction....including the SP500 hitting an all time high.

S&P 500 hits record high as Wall Street brushes off higher inflation data

https://finance.yahoo.com/news/futures-hold-steady-ahead-inflation-111940251.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks rose on Thursday, with the S&P 500 hitting a record high, as investors doubted whether a spike in May consumer prices would spur early policy tightening by the Federal Reserve.

The Labor Department said its consumer price index increased 0.6% last month after surging 0.8% in April. In the 12 months through May, CPI accelerated 5.0% in its biggest year-on-year increase since August 2008.

The jump partly reflected the dropping of last spring's weak readings from the calculation. These so-called base effects are expected to level off in June.

"The numbers were slightly more than expected, but not way outside of the range ... I don't think this going to change the Fed's view of keeping rates very low," said Mark Grant, chief global strategist, B. Riley Financial.

Focus will now be on the Fed's monetary policy meeting next week for more clues about the central bank's stance on tapering its massive stimulus.

The labor market and inflation are two key factors for the Fed to consider tightening, and while inflation has risen, recent payrolls data was underwhelming.

A separate report on Thursday from the Labor Department showed the number of Americans filing for jobless claims fell less than expected last week.

"As the economy continues to improve, a lot of bottle neck pressures will start to fade. I don't think there is any reason for the Fed to panic," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

At 9:48 a.m. ET, the Dow Jones Industrial Average was up 230.84 points, or 0.67%, at 34,677.98, the S&P 500 was up 27.27 points, or 0.65%, at 4,246.82. The Nasdaq Composite was up 109.64 points, or 0.79%, at 14,021.39.

So-called "meme" stocks, which have dominated trading volumes in recent weeks, were again volatile in early trade, with several recent retail darlings including Clover Health and AMC flitting between losses and gains.

GameStop Corp, the stock most closely associated with the retail buying frenzy this year, fell 9.1% after the company said it may sell new shares. The videogame retailer also said the Securities and Exchange Commission had requested documents related to an investigation into the Reddit rally that sent its shares up 1,600% in January.

Boeing rose 2.0% after sources told Reuters United Airlines was in talks to place a multi-billion-dollar order for single-aisle jets potentially split between Boeing and Europe's Airbus.

Ocugen Inc tumbled 15.5% after the drugmaker said it will not pursue an emergency use authorization for its COVID-19 vaccine candidate and would instead aim to file for a full U.S. approval of the shot.

Focus was also on a major infrastructure spending bill, talks over which hit a deadlock in the Senate.

Advancing issues outnumbered decliners by a 2.55-to-1 ratio on the NYSE and a 2.17-to-1 ratio on the Nasdaq.

The S&P index recorded 38 new 52-week highs and no new low, while the Nasdaq recorded 58 new highs and six new lows."

MY COMMENT

EXACTLY.......see comments to post above this one. More and more people are starting to come down in the camp thinking that......yes.....there will be no inflation. In fact....anything up to about 4% or slightly above will be healthy for the economy.

Of course.....now.....the media and others will simply move on to the FED meeting next week as the short term topic of the moment. In the meantime...actual investors and actual stocks....continue to move on up. Yes...a lingering slow advance....but a DEFINITE advance....as the markets continue to slowly climb the.......HUGE.......wall of worry, that is being manufactured by the financial media on a daily basis.

AND......a bit here about the MEME stocks. They should be called the.......SOCIAL MEDIA INFLUENCER......stocks. How DUMB is that....investing based on some social BS on a message board. YES.....the people pushing this......TRASH INVESTING......are simply social media influencers. I could see playing these stocks as short term trading vehicles.....if you are a professional trader. BUT.....as a normal retail investor.....INSANITY. BUT...that is human nature......and....that is the human brain. there is a reason that the average investor CAN NOT beat the unmanaged indexes.

 

Another bit of data....relevant to....inflation. Mortgage rates. With the Ten Year Treasury doing what it is doing.....rates are NOT going up any time soon. In fact they MAY actually DROP. NOT an indicator of out of control inflation........actually....probably another indicator of the potential for DEFLATION.

Mortgage rates fell over the past week, despite inflation hitting a 13-year high. What’s going on?

https://www.marketwatch.com/story/m...high-whats-going-on-11623333705?siteid=yhoof2

(BOLD is my opinion OR what I consider important content)

"Benchmark mortgage rates slid over the past week, without any clear reason for a decline, continuing the reprieve for price-sensitive home buyers.

The 30-year fixed-rate mortgage averaged 2.96% for the week ending June 10, down three basis points from the previous week, Freddie Mac FMCC, 1.47% reported.

The 15-year fixed-rate mortgage fell four basis points to an average of 2.23%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.55%, down nine basis points from the prior week.

Generally speaking, mortgage rates move roughly in tandem with long-term bond yields, including the 10-year Treasury TMUBMUSD10Y, 1.498%, and this past week was not an exception. “The Freddie Mac fixed rate for a 30-year loan dropped along with the 10-year Treasury yield this week, as investors seem to accept the Federal Reserve’s view that the current inflation is temporary and a patient monetary response continues to be warranted,” said Danielle Hale, chief economist at Realtor.com.

This week’s mortgage rates report could also be a reflection of the monthly jobs data released last Friday, since May’s employment figures came in below expectations."

MY COMMENT

Hello? No clear reason for the decline? A suggestion for the writer.......dont start your articles with a statement that the remainder of your article......DEMOLISHES.

It is TOTALLY clear why rates are not going up and actually some weeks go down. As the article explains....after the opening sentence which makes no sense......the rates are down because the Ten Year Treasury is down....and....the jobs data is BELOW expectation.....and....because the FED and the investing community is..... NOT.......seeing out of control inflation.

In any event....this is the BEST news possible for home buyers operating in a very difficult sellers market.

 

BUT.....not to get carried away today. Actually...the NASDAQ and the SP500 in terms of percentage gain are positive......but WEAK. It is NOT a run-away market. We are STILL in the same market as the past few months. The direction is STILL....strongly....positive, but we are STUCK in the typical summer doldrums.

We started the day strong...and now....we are seeing mid-morning profit taking.....and....trading on the daily news. As usual.....the end of the day market numbers are STILL very much up in the air.

The SP500.......5.5 months into the year....is at +12.52% year to date. A very strong year so far. BUT....this is not reflected in the general attitude of much of the financial media or investors. This is.....ALSO.....a positive indicator. The big gain this year is UNDERAPPRECIATED and often unrecognized.....a very positive contrary indicator.

 

At the moment....I see that the Ten year Treasury has....SLIPPED.....below 1.50% again. We are at this moment at a yield of 1.494%. At least the markets....at this micro-moment in time.....have decided to show a bit more strength in the general averages gain for the day....so far.

The Ten Year Treasury Yield.....CONTINUES to be near the.......EXTREME LOW.......of the past.....100 years. ALL of the Ten Year Yield....... MANIA......and fear mongering we saw in the media a month or two ago......was ALL...driven by the traders PUSHING their trades. A CLASSIC example of WHY investors should simply......IGNORE.....the short term DRAMA.

 

You got it StockJock-e. Not much out there for those that need to focus on SAFETY and get a bit of a return.

Somewhat on this topic....but not really. I just looked at my account. One brokerage account I have has a total of......$158.27......in it. I wanted to open a dedicated bank account for my monthly annuity payments at Schwab.....and.....they required me to have a LINKED brokerage account in order to open the new bank account.

I did not want to link to my primary brokerage account to that single purpose bank account......so I was forced to open a brokerage account that I never us. I put $100.88 into the unused brokerage account.......as a place holder.......to have something in the account so they would not close it due to no activity...... and I invested that money in the Schwab SP500 Index fund. I cant stand to have even.....$100.88.....siting un-invested.

I looked at that brokerage account today. It was opened on 2-19-19. Over the two years and four months since it was opened......the account has grown by 51.09%. So it was opened in February of 2019....sat through the entire pandemic......and ....economic shut down and market drop.....and now.....as of today has a gain of 51.09% in just over TWO YEARS.

A nice lesson....to me......as to the POWER of.......somewhat......long term investing......and......the POWER of INDEX FUND investing. At this rate....that little account.......MIGHT....actually hit $500 in my lifetime.

This account is a Rip Van Winkle account.....it went to sleep in February of 2019......slept through all the turmoil and drama of the pandemic and the last 2+ years........and woke up today with a nice 52% gain. For this little account....IGNORANCE IS BLISS.

 

A very SOLID day today for my account. AND....a new all time high. VERY green today with the only down holdings being AAPL, HON and NKE. A nice beat of the SP500 by .13%.

For a day when we had a MAJOR inflation indicator come out.....the CPI.....the markets were very strong.

This little thread started in October of 2018......if you look through it from that time till now....the markets....in spite of everything have been solidly UP. The obvious trend.....over the long term.....is ALWAYS.....UP.

 

LOL....the financial media does not know what to say about today. The VAST MAJORITY of the articles that I am seeing say...NOTHING....about the CPI or inflation. they are just ignoring today. It is all about wealth taxes and bitcoin. HERE is the LEAD STORY on one site....for the day:

Schumer: ‘The federal government is making profits off the backs of our students’

https://finance.yahoo.com/news/student-debt-forgiveness-schumer-interest-rates-204633113.html

NOT word about the story of the day.....that did not pan out the way they thought.

 

HERE is one MAJOR story today...at least for me as a shareholder.

Costco is opening 5 new stores across the US this summer, as its sales continue to boom after lockdown

https://news.yahoo.com/costco-opening-5-stores-across-091533978.html

(BOLD is my opinion OR what I consider important content)

"Costco is opening five new stores across the US.

According to an announcement on its website, Costco will open new stores in: Murfreesboro, Tennessee; Little Rock, Arizona; Moore, Oklahoma; Springfield, Missouri; and Naperville, Illinois. These stores are due to open between July and August, Costco said.

It was also opening one new store in each of Australia and Japan, it said.

Lots of retailers in the US pulled back on physical stores during the pandemic - Costco is one of the few to be opening new locations.

Sales boomed at the warehouse chain at the height of the pandemic, and have remained high. Total revenue for the year ended August 2020 was up 9% to $163 billion. In its most recent quarterly earnings results, reported at the end of May, revenue was up 21.7% to $44.38 billion.

Costco has more than 800 stores globally, 559 of which are in the US and Puerto Rico. In its annual report, the company said it planned to open 20 new locations in 2021.

Costco has become one of the few legacy brick-and-mortar retailers to stave off the threat of Amazon, despite being "stubborn" about going digital, Insider's Alex Bitter recently reported.

While the pandemic spurred on many of its grocery competitors to bet on delivery and pickup for customers that didn't want to shop in-store, Costco has been intentionally slow to follow.

"We don't have our head in the sand on it," CFO Richard Galanti said about more pickup options in an earnings call discussing Costco's 2020 annual results in September. "We look at it. We have people here that study it. And maybe we'll surprise you one day. But at this juncture, we're not prepared to do that.""

MY COMMENT

This is very good news for shareholders and for the company going forward. the company is STILL kicking ass.....even though the pandemic is over and we are re-opening. It is ALSO good news for the general economy.

There was a BIG story line repeated in the media during earnings about companies like this NOT being able to hold onto the high earnings as we re-opened. Well as usual.....that is BALONEY. This company....like many....is going to BOOM for a substantial length of time.....[pandemic ,or no pandemic.

There guys have total FOCUS on their business model and they do it over and over and over. Great concept, great execution, and great management. The BEST at what they do....world wide.

 

Dividend check? I am still waiting for my and my wife's $1400 each in stimulus money. I filed my taxes early......mid April......hoping that the IRS would see that my new tax bracket......based on my financial planing of my retirement income reducing my taxes by about 85%......qualifies us for the stimulus money.

Well with the IRS being all screwed up....having a massive backlog.....and being all caught up in illegally leaking various Americans tax data....I STILL dont have my stimulus money. I suspect I will be taking it as a credit on my next tax return.

 

Well......I got a new high on my account today.....and....looks like the old SP500 also hit an all time high. A....bumbling and stumbling market....but we slowly move higher. The market it clearly saying....."I want to take you higher".

S&P 500 closes at all-time high as long-term inflation jitters fade

https://finance.yahoo.com/news/futures-hold-steady-ahead-inflation-111940251.html

(BOLD is my opinion OR what I consider important content)

"Wall Street stocks ended higher on Thursday, with the S&P 500 closing above its prior record high set on May 7, as economic data appeared to support the Federal Reserve's assertion that the current wave of heightened inflation will be temporary.

All three major U.S. stock indexes advanced, with market-leading megacap stocks putting the Nasdaq out front. But economically sensitive transports and smallcaps ended the session in negative territory.

The Labor Department's consumer price index (CPI) data came in above consensus and added fodder to the debate over whether current price spikes could transform into long-term inflation, despite the Fed's assurances to the contrary.

But a closer look showed that much of the price surge came from items such as commodities and airfares, and is therefore likely to be temporary.

"Earlier this week we had extremely boring market days as we all had our eyes on the bullseye of this CPI report," said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina. "But once people looked under the surface, the majority of the higher inflation is due to the reopening, and stocks had a relief rally."

"The market is taking it in stride as it realizes the whole economy isn't overheating," Detrick added.

A U.S. House of Representatives committee passed a $547 billion infrastructure spending bill targeting surface transportation, adopting some of President Joe Biden's proposals as part of his broader $2.3 trillion infrastructure package.

Still, sectors that stand to benefit from infrastructure spending ended the session lower. Industrials and transports fell by 0.5% and 0.7%, respectively.

The Dow Jones Industrial Average rose 19.1 points, or 0.06%, to 34,466.24; the S&P 500 gained 19.63 points, or 0.47%, at 4,239.18; and the Nasdaq Composite added 108.58 points, or 0.78%, at 14,020.33.

Among the 11 major sectors of the S&P 500, healthcare enjoyed the largest percentage gains.

But interest rate-sensitive financials fell the most, dropping 1.1% as easing U.S. Treasury yields weighed on the sector.

GameStop Corp, the stock most closely associated with the social media-driven "meme stock" phenomenon, dropped 27.2% after the videogame retailer said it may sell new shares.

Other stocks that have benefited from the retail short-squeeze rally, including Clover Health Investments Corp, AMC Entertainment Holdings, Bed Bath & Beyond Inc and GEO Group, also slid, losing between 8% and 19%.

Pfizer Inc advanced 2.2% on news that the United States would pay the drugmaker about $3.5 billion for 500 million COVID-19 vaccine doses that it intends to donate to the 100 lowest income countries.

Advancing issues outnumbered decliners on the NYSE by a 1.25-to-1 ratio; on Nasdaq, a 1.13-to-1 ratio favored advancers.

The S&P 500 posted 58 new 52-week highs and no new lows; the Nasdaq Composite recorded 102 new highs and 14 new lows.

Volume on U.S. exchanges was 10.64 billion shares, compared with the 10.67 billion average over the last 20 trading days."

MY COMMENT

We will....probably.....continue to be in a range bound market for the near future.....with some bumps up here and there.

The comments in this little article are some of the more FIRM comments that I have seen lately about the fact that we are......NOT....likely to have an inflation problem. My view remains the SAME......yes.....there is NO inflation.

I will say we are not totally out of the wood yet. There is still MUCH DISRUPTION of the labor and employment markets. The one thing that I believe......."could".....not "probably will".....cause bad inflation would be a wage/price spiral. We are not seeing this at the moment...but....with the screwed up labor and employment situation....who knows how it will all sort out over time. We should be pretty well re-opened by year end.....so that will be when all this "stuff" is near an end.

Hopefully......the recognition of reality and non-reaction to the CPI numbers....will lead the markets to a BIG RALLY tomorrow to end the week.

 

HERE is a little MOTIVATION for the markets tomorrow.......not that SLY was the best role model for money management.



(BOLD is my opinion OR what I consider important content)

Lyrics

"Hey, hey, hey, hey
Beat is gettin' stronger
Music gettin' longer, too
Music is a-flashin' me

I want to, I want to, I want to take you higher
I wanna take you higher
Baby, baby, baby, light my fire
I wanna take you higher

Boom laka-laka-laka, Boom laka-lak-goon-ka boom
Hey, hey, hey, hey

Beat is nitty-gritty
Sound is in your city, too
Music's still flashin' me

Don't ya, don't ya, don't, don't, don't ya wanna get higher?
Don't ya wanna get higher?
Baby, baby, baby, light my fire (Woo)
I wanna take you higher

Boom laka-laka-laka, Boom laka-lak-goon-ka boom
Hey, hey, hey, hey
Boom laka-laka-laka, Boom laka-lak-goon-ka boom

Higher
Higher
Higher
Higher
Higher (Won't ya light my fire?)
Higher (Woo, yeah)
Higher (Wanna take you higher)
Higher
Hey, hey, hey, hey

Beat is there to make you move
Sound is there to help you groove
Music's still flashin' me
Take your places

I wanna take you higher (Higher)
Wanna take you higher
Baby, baby, baby, light my fire (Woo)
I wanna take you high, high, high, high, high, high, high, high

Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom

Wanna take you, do you wanna go
Wanna take my fire
Wanna take you higher

Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom, Boom laka-laka-laka, Boom laka-lak-goon-ka boom
(Higher)

Don't ya wanna get higher?
I wanna take you higher
Hey, hey, hey, hey
Boom laka-laka-laka, Boom laka-lak-goon-ka boom
I wanna take you higher
I wanna take you higher
Boom laka-laka-laka, Boom laka-lak-goon-ka boom
Everybody higher, higher, higher"

 

I dont know why the financial media has gotten the idea....lately....that inflation is BAD for stocks and investors. That has...NOT...been my experience over a lifetime of investing....45+ years.

Look at this graph: Morning Brief

https://finance.yahoo.com/news/stoc...d-fed-rate-hikes-morning-brief-100310094.html

(BOLD is my opinion OR what I consider important content)

"Even amid Fed rate hikes, stocks usually go up

Rampant inflation in an overheating economy is bad. And so to fight that or prevent that, the Federal Reserve is expected to tighten monetary policy via the tapering of its quantitative easing program and the hiking of its fed funds rate.

Currently, employment is rising and the prices of goods and services are climbing. But it's hard to argue that the economy is overheating with employment still 7.6 million jobs below pre-pandemic levels. And it's hard to argue that inflation is rampant as the increase in prices largely appears to be related "transitory" factors like base effects, reopening quirks, and some unusual short-term supply chain bottlenecks.

Nevertheless, with the consumer price index (CPI) jumping a hotter-than-expected 5.0% year-over-year in May — the biggest jump since August 2008 — it's worth exploring what tighter monetary policy could mean for investors.

Credit Suisse's Jonathan Golub did just that earlier this week, and he found that tighter policy isn't obviously bad for stocks as investors might expect.

"While investors might interpret the reversal of Fed policy as a bad omen, history shows that stock returns remain robust in the months leading up to and following the first rate hike," Golub said in a note to clients on Wednesday. "More specifically, over the past four rate hike cycles (’94, ’99, ’04, ’15) the S&P 500 gained 9.5% in the 12 months prior to the first hike, and 26.0% over the subsequent three years."


Stocks tend to go up. (Credit Suisse)
"The real damage from higher rates tends to occur later in the cycle when tighter policy flattens/inverts the curve," he added. "We are eons away from that happening."

Now, we'll acknowledge that the average Golub computed is arguably an oversimplification and that four rate hike cycles is a pretty small sample size.

And when you consider all the other variables in the market, you could also argue that what we're experiencing today is totally unprecedented. And so, the past won't help outline the future.

But we can't help but appreciate the "stocks usually go up" energy emanating from Golub's chart. And to that, we'd make two points.

First, everyone is already talking about the risk of inflation heating up. And so the downside of tighter monetary policy amid rising prices is an event that may already be priced into the market.

Second, businesses can be very flexible in the pursuit to grow profits. This means that when they are confronted by challenges that threaten profit growth, they will make changes to their strategies or even outright overhaul their business models. This is something we learned throughout the coronavirus pandemic. Offices had employees working remotely. Restaurants ramped up their pickup and delivery options. TV personalities broadcast from their homes. And so on.

All this speaks to the truth about the stock market. There are always major risks that'll have investors reluctant to put money in the market. And there are often unexpected shocks that'll come with big scary sell-offs. But even when things are still bad, stocks rally as investors look past the challenges and bet that consumers and businesses will figure out a way to make things better.

In other words, it's never a given that stocks will fall."

MY COMMENT

I have invested through ALL the time periods on the above graph....as well as.....being continuously invested for the past 45+ years.....with the exception of January 2008 to March of 2009. Over that entire time......... my investments have done well during any time periods of........real/imagined........ inflation. In fact....I dont even remember inflation being a big....talking point issue....during any of those times. The ONLY time when inflation was a...talked about issue....in my entire lifetime was in the late 1970's to the early 1980's.

Based on....being an actual investor.....I dont even consider that we had inflation after the early 1980's. From that time on the FED has tended to chase after.......NON-EXISTANT inflation......that did not even exist........and.....often the end result was causing a recession by raising rates when there....ACTUALLY....was no reason to do so.

REGARDLESS......I count on the management of the businesses that I own to have the brains to deal with ANY economic issues. I ALSO count on management to have the brains to anticipate any economic issues.......and be prepared to operate and make money regardless of what is going on in the world.

One problem with all the.....NEW ERA THINKING...that we now see in the financial media is....it is just an intentional or unintentional EXCUSE for being IGNORANT. There is no need to ACTUALLY know anything about financial history.......no need to do any research....no need to have any actual experience in what you are talking about. It is a SHAME...that....often lately we go through these......CRISES MOMENTS....with everyone worked into a TIZZY......and than later it turns out that NOTHING actually happened. Just in the short time this thread has been in existence.......there are many examples of this sort of IGNORANCE.