Through the Roof
Having grown up in the ‘60s and attended college in the late ’70s, I vividly remember my father telling me, “Cost of everything is going through the roof”. It was an often-used sentence by people living in the ’70s. That was the last time inflation was this out of control.
Take a look at a sampling of extraordinary year-over-year price increases that consumers are now faced with daily:
Groceries +11.9% (Largest since 1979)
Restaurants +9% (Largest ever)
Fuel oil +107% (Largest ever)
Electricity +12% (Largest ever)
Rent +5.2% (Largest since 2006)
Airfare +37.8% (Largest since 1987)
Important Market Insight From Friday’s Bear Market Trend Continuation Day
As you probably know, in rational times, the biggest stock and bond investors tend to make their investment decisions based on their view of the earnings outlook 6-12 months in the future rather than what’s happening today. On Friday, many of them changed their view of the future.
To that end, for the better part of a year, in this Market Outlook, we’ve been saying that “something is not quite right.”.
As you just read in the inflation statistics above, it’s easy to see now that there’s a problem with inflation. The next likely hot topic will be GDP growth (or lack thereof). We’ll come back to growth later (below) because Friday’ and Monday’s market pounding was related to inflation more than GDP growth.
On Friday, the government released May’s inflation data (CPI), and it proved that inflation didn’t peak at the 8.3% level.
The “inflation has peaked” believers were expecting a better monthly and year-over-year number. The report, however, was a hotter 8.6% YOY number. Even worse, the monthly number was 1.0% versus the estimated 0.60%.
If you do the math, that is an annualized number of approximately 12%.
Friday and Monday’s big move lower in the market reflects an unwinding of the widespread belief that inflation had peaked.
Food and energy are major contributors to the Inflation thesis. Specifically see the price of gasoline futures below:
You will notice that the price of gasoline (futures) has gone from $2.20 at the beginning of 2022 to approximately $4.17, almost a 100% increase, and that’s not even a whole year’s change.
Please note that the price of futures is what the core price of gasoline is before it is processed with various leaded components, before distribution costs, before Federal and State taxes are imposed and before dealer profit is priced in. (gasoline stations).
Given the actual shortage that the US is now experiencing from demand, global supply issues, and the boycotting of Russian oil, the price may continue rising even though the National average is now at $5.00 a gallon or more.
Click here to continue reading the complete Market Outlook article and learn:
- Recent moves that have occurred in the interest rate markets
- The bigger problem with revolving credit and its impact on consumer behavior
- What might be the next steps for the markets
- What our Big View market analysis suggest about the next market moves (in bullets and video)
- Where to invest now
- Steps you can take to protect your portfolio and get good guidance going forward
Get it all here
By Keith Schneider and Donn Goodman