As we begin the 2nd half of 2021, the economy is seemingly getting back into the swing of things. For some areas of the U.S. economy, activity is now back above pre-Covid levels. Economic activity within China surpassed pre-Covid trend estimates sometime last year, and momentum is picking up in Japan and Europe. Our post-pandemic world is starkly different from the post-GFC (Great Financial Crisis) world which encountered low inflation, deleveraging, sluggish growth, and constant policy support. As a result of the stimulus, we are anticipating higher levels of inflation at least for the next couple of years. Additionally, we anticipate a more muted monetary policy in response to inflation, as the Federal Reserve has stated they are willing to let inflation run above their 2% target.
With the expectation of higher-than-normal inflation and a more muted monetary policy response than in the past, we believe this is constructive for equities. Many businesses have the capability to raise prices for their goods and services in conjunction with rising inflation.
With inflation top of mind, it is important to remember that supply chain disruptions coming out of the pandemic and from other external factors have been a major contributor to the increase in prices. With supply chains working overtime to fulfill the returning demand, we can already see prices for some of these goods returning to a more normal level. For example, wood prices peaked in May, trading as high as $1,700 per thousand board feet. That is almost quadruple the level from a year earlier. However, wood prices in early July were all the way down to $599 per thousand board feet, which is a 65% reduction in price.
While U.S. stocks rallied to record highs after selling off earlier in the week, U.S. government bond yields declined, or increased in price (due to inverse nature of bond yields and bond prices). At least for the near term, investors shouldn’t be surprised by any near-term market whipsaw as volatility is expected to some extent under the unprecedented economy restart dynamics. We remind investors that it is crucial to maintain a diversified mix of assets within their portfolio. Additionally we understand investors can get caught up in the short-term market reactions, but we would like to re-focus clients attention on their long-term objectives.
Please let us know what else we can do to serve you. We are here for you and happy to just chat about what is going on in your world. We look forward to continuing to help all of our clients plan for and achieve their financial objectives.
US Capital Wealth Advisors, LLC (“USCWA”) is a Texas-based investment advisory firm registered with the United States Securities and Exchange Commission (“SEC”). As an independent, fee-only, registered investment advisor (RIA), USCWA is able to provide sophisticated, holistic wealth management services, with expanded access to investment solutions. We take our fiduciary responsibility to you seriously, which means we are committed to what is in your best interest. Our long-standing objective is to enable you to achieve your financial goals and to act as a trusted resource for you and your family.
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