Friends
If you were looking for a pullback, here you go. We have chronicled the problems that the Nasdaq has encountered recently, and now we have a quick 4% pullback in the S&P 500 within days. Today’s higher than expected (and a high number was expected) CPI number sparked inflation worries once again. Remember, the Fed is firmly convinced (well, at least that’s what they say) that this period of inflation will only be temporary and is driven by economies around the world opening back up and scarcity in supply is being somewhat overwhelmed by demand. Indeed, this inflation that we are seeing may be temporary, but we haven’t seen inflation like this in a very long time. (How many of you remember Fed Chair Volcker?)
As for today, by the close the Dow Jones Industrial Average was down 681 points to finish the day at 33,587. The S&P 500 was down 89 points to close at 4,063. The Nasdaq Composite Index was down 357 points to close at 13,031. Gold was down $16 to trade at $1,820 per ounce, while oil was up $.49 to trade at $65.77 per barrel WTI.
We’ve wondered for some time now if share prices were already reflecting a strong economy. If that was/is the case, then a pullback such as the one we are seeing probably is a good resetting of expectations. Think about this for a moment. If inflation is the big concern, what do you want to do with your money? Gold used to be an answer, but that correlation hasn’t worked in decades. How about bonds? Well, if interest rates are going to continue to rise then the price of bonds will continue to fall. Cash is a good short term solution, but inflation will eat away cash’s purchasing power over time. Let me think, were does that leave us? Real Estate perhaps, but try buying something nowadays- it’s like hand to hand combat. And, if borrowing costs/mortgage rates go up then that pushes a lot of buyers out of the market and makes leverage less attractive overall. Ah, crypto currencies you say. Maybe, I don’t know. How tested are they? What if governments decide that they need to step in and regulate/tax/control currencies that are threatening their very power? Jim, there’s one asset class you forgot to mention…
Have a nice evening everyone.
