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  • Writer's pictureDoug MacGray

Inflation and War Lower Stocks, Housing Costs, Parkers and Vitamins

April 22, 2024


INFLATION AND THE FED:  From January of 2017 to February of 2020, the U.S. Consumer Price Index rose by 2%, annualized. From February to June of 2022, inflation rose at an annual rate of 11.4%. During the second half of 2023, CPI was 2.5% annualized, and we all breathed easier. But so far this year, inflation is running at 4.6% annualized. A plausible explanation for the comeback of inflation is that aggregate income in the U.S. is currently rising by about 6-7%. Spending is going to keep increasing when that happens. According to one analyst that I read, "Officials do not need … to do anything about this. The current combination of robust growth, high employment, relatively tame inflation, and mid-single-digit yields on safe assets represents the best set of macroeconomic and financial outcomes for the U.S. in decades. But it also means that there is little reason for monetary policymakers to lower interest rates...." Unfortunately, the "relatively tame inflation" compounds and disrupts lives and spending patterns, so if it continues as is we may have fairly solid macroeconomic outcomes, but malaise and discontent. Since the markets are fueled by the emotions of buyers and sellers, this will aid and abet volatility. So, we may continue to see markets rise on solid economic news and corporate earnings one day, and fall when geopolitical events and inflation data dominate the news the next day.


STOCKS DECLINE:  The uncertainty of the immediate outcome of the Iran/Israel attacks continued to keep a cloud over the markets as trading went on this past week. Oil prices moved around a bit, rattling the markets.  In addition, the reality that current inflation numbers will likely keep interest rates higher, longer is beginning to settle in. The so-called "Magnificent Seven" stocks lost a collective $950 billion in market capitalization this past week. Nvidia fell by 10% on Friday. But firms continue to report first quarter earnings, and both American Express (up 5.7%) and UnitedHealth Group (up 13.9%), helped stabilize the markets with encouraging profit reports and future guidance.



LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  



RETAIL SALES UP:  In March, retail sales in the U.S. rose by 0.7%, a healthy increase. Retail sales in March were 4.0% higher than one year ago.


INDUSTRIAL PRODUCTION DATA MIXED:  Industrial production (measurement of manufacturing, mining, and utilities) rose 0.4% in March, but total output in the first quarter is down 1.8%. Current levels are hanging in at the pre-pandemic high.



HOUSING COSTS:  I have watched very closely as family members have searched for their first home. It is a crazy market. After being outbid on homes multiple times, they finally found a home where they were not outbid. The cost of housing is a huge challenge for our current economy. In a recent poll by the Financial Times of U.S. respondents earning $100,000 or more, 60% ranked housing costs at the top of their list of worries going into 2024. The average monthly cost of a family home rental is now $2100. In 2019, that number was $1400. That is a 50% increase.


ECONOMISTS ARE IN A BETTER MOOD:  In the most recent quarterly survey of economists done by the Wall Street Journal, just 10% believe the economy will experience a negative quarter of growth over the next twelve months. That number was 33% in January.


PATRIOTS' DAY AND THE PARKERS:  Growing up in Massachusetts, we always had Patriots' Day off. It is a day that commemorates the battles of Lexington and Concord that occurred on April 19, 1775. It is also the day of the Boston Marathon and always a morning baseball game at Fenway Park, a great tradition in which I often participated. I asked one of my millennial co-workers last week about it last Monday. She was not aware that it was Patriots' Day (most people outside of New England are not).  But I asked her, "what happened in April of 1775?" She paused for a few moments, and the light bulbs went off, "The shot heard round the world!" There is hope for the millennials after all. John Parker was in charge of the Lexington militia that morning. He is reported to have said, "Stand your ground. Don't fire unless fired upon, but if they mean to have a war, let it begin here." It did. John Parker witnessed his cousin Jonas Parker die from a bayonet charge, and later led a battle against the British in what was called "Parkers' Revenge." He also participated in the Siege of Boston, but later that year died of tuberculosis at the age of 46. He left a legacy. His grandson, Theodore Parker, was an abolitionist whose words later inspired speeches by Abraham Lincoln and Martin Luther King Jr. The same family had an outsized impact on its beginning, the Revolutionary War, and the subsequent war which led to the abolition of slavery. 


AVOIDING THE FLU:  I traveled the week before last, arriving back home exactly two weeks ago. Five of the six of us who traveled together ended up getting ill with the flu, including my wife who got it bad. Somehow, I avoided it. I think enough time has passed that I am safe, right? Maybe it's the vitamins I take.




Have a great week!


Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.


Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545


"All men need something to poetize and idealize their life, a little something which they value more than its use, and which is a symbol of their emancipation from the mere materialism and drudgery of daily life."  Theodore Parker, Abolitionist


"Those who think they know something do not yet know as they ought to know."  I Corinthians 8:2


SOURCES:


(c) 2024 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved


*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.


Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

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