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Dear Friends, As most of you know, Joe (and now John) has been honored to do workshops titled Money Matters for the members of the Sarasota Classified/Teachers Association for nearly 14 years. In fact, many of our clients came to us after attending the presentations and countless great relationships have developed over the years. The bond that we have formed with educators and the support staff has been invaluable and precious. We cannot express enough how appreciative we are for the opportunity to be of service to these dedicated professionals. Unlike any vocation anywhere at any other time, this past year presented them with unprecedented challenges to do their jobs effectively. But with passion and commitment, they made it through this pandemic-induced maelstrom. So, as the school year concludes and summer break is almost upon us, we want to give a sincere shoutout and great big THANK YOU to all the dedicated individuals that gave their best efforts to educate, feed, and transport our future leaders. You are appreciated! ZOOM Webinars for Clients As Ben Franklin said, “Nothing in life is certain but death and taxes”. And while Congress can rarely ever get out of its own way, we should still prepare for possible changes to the tax and estate planning legislation that may come our way. So, on Wednesday, June 23, at 5:00, our ZOOM webinar topic will be “The SECURE Act 2.0 and Potential Impacts of the President’s New Tax Proposals”. Admittedly much of these proposed tax changes may not make it through both chambers, some will—and it could happen more quickly than you expect. It pays to be prepared and plan so nobody is blindsided. If you are interested in attending, please email us at Inquire@RealityFinancialPlanning.com and John will send you the ZOOM meeting details. As an FYI, all of our past presentations can be found in the Media & Posts tab on our website www.realityfinancialplanning.com. If there are any other topics for which a Zoom presentation would be relevant to you, please let us know. Market Review In the first few weeks in May, investors and traders were reminded once again that markets go down—sometimes with a lurch, including a 2.1% one-day decline in the popular S&P 500 index of U.S. stocks—which was described as “the biggest one-day drop since February,” in case anybody is an avid market historian. In the first three days of that week, the index had fallen 4%, which sounds kind of scary until you look at the year-to-date chart and see that, so far, this has been a pretty good year to be invested overall. Investors in U. in U.S. stocks were still sitting on nearly 12% return for the yea U.S. stocks were still sitting on nearly 12% return for the year.  What caused the dip? Economists became nervous when employment numbers in March were revised downward and the number of jobs in April came in below expectations. The best estimate is that the U.S. economy is still 8.2 million jobs below its peak in February 2020, which means the recovery may not be proceeding as rapidly as some had hoped. Once again, when you look at a long-term graph, you can see that there are clear signs of progress from the bottom.
But the most prevalent, overused explanation for the market jitters was a sudden unexpected spike in the inflation rate. When government economists at the U.S. Department of Labor looked back at consumer prices in the month of April, they calculated, to everyone’s surprise, that the month-to-month gain in the cost of a basket of goods (including energy and housing costs) had risen 0.8% over March prices. This was well above the expected 0.2% and caused traders to worry that the U.S. Federal Reserve Board would raise interest rates to counteract inflation, which would raise bond rates, and then bonds would more effectively compete with stocks for investment dollars. If you were able to follow that chain of logic, congratulations. But a harder look at the numbers shows that much of the price increase came in the energy sector—energy prices, which can be notoriously volatile, jumped 25% from the same time last year, including a 49.6% increase for gasoline. (Recall that there was also a “hack” of the Colonial petroleum pipeline in early May that contributed to a blip in gas prices as well). Used car and truck prices were up 10% in April. More worrisome to traders and pundits, the so-called producer price index, which is the inflation rate for companies and especially manufacturers, had risen 6.2% for the 12 months ending in April, which was well above the 3.8% forecasts offered by economists. But some are attributing these higher costs, at least in part, to the supply chain bottlenecks caused by border restrictions due to the pandemic, and more specifically to the ripple effect of the Suez Canal blockage in March. What you probably have not read is that these “spikes” in inflation are also in part due to the fact that prices had been depressed due to the pandemic and the widespread shutdown of the U.S. economy. This has greatly distorted year-over-year comparisons and makes the inflation picture look a lot more worrisome that it probably is. This is not to say that stocks can’t go down; the emotional impacts of selloffs have a way of feeding on themselves. But it is equally possible that the market will decide that the best days are still ahead. We are close to having the economy finally back on its feet and most people vaccinated, which could drive growth—and stock value—over the remainder of the year. It would be nice to know in advance, but what we do know is that over time companies have tended to increase in value, because of the daily labors of their workers, even if their stocks go on sale in the meantime. Conclusion If you are making plans to enjoy your freedom this summer, please take care of yourselves and travel safely. As always, thank you for the trust and confidence you place in us. It is something we never take for granted and sincerely appreciate. Please do not hesitate to reach out whenever you have questions, concerns or whenever we may be of service to you. Sincerely, Joe Downs, CFP® & John Cunningham, CFP® Comments are closed.
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