Take a look at last week’s market recap from Joe Gallemore, CIMA® Partner & Director of Investment Management for Argent Bridge Advisors. Watch the video now!
Joe’s Notes:
Two kinds of inflation
- Sticky – eating out, Starbucks, services like a haircut or getting your nails done or Amazon Prime.
- Non-Sticky – somewhat “transitory”. Costs of manufacturing inputs, industrial metals, agriculture, semiconductors, etc. The demand is there, and supply needs to recover to meet it. Once it does, costs of things like new cars and other manufactured goods should come down.
- Not-so-sticky inflation recedes when supply is increased to meet demand, or demand wanes. But sticky inflation changes much more slowly since it is driven primarily by consumer behavior, which can take a long time to shift.
- Both of these are affected by the price of energy, which has recovered strongly from an immense low during the pandemic shutdowns in 2020 and was the best performing sector last year. Energy inflation is felt both personally when you buy gas at the pump, and as an input cost to the goods and services you buy. Things like the cost of plane tickets are significantly influenced by energy costs. So once economies re-normalize, and demand plateaus, the price should eventually come down.
- Most strategists think higher prices will be around for a while.
What you can do about it
- Some of it, nothing. Can’t control the cost of steel or metals, supply chain logistics, increase the labor supply engagement. These are all factors that will work themselves out and raise supply to meet demand, which should in turn lower costs.
- You can control your spending. Simply being aware that your $10 won’t go as far right now and making small tweaks in your regular spending or delaying big purchases can be significant while the cost of living is elevated.
- (If you need guidance, talk to your financial advisor about it!)
How does this affect my portfolio?
- Investors usually hear “inflation” and think, “oh no! my bonds”. Well, portfolio income doesn’t only come from bonds. And bond’s purpose isn’t only to provide income.
- Equities are the best hedge against inflation.
- Even though inflation is high, the economy is still growing, and stocks are the best way to take advantage of this.
- Also, we all know $1,000,000 isn’t what it used to be. And the proven best way to combat the rising cost-of-living decade over decade is to stay invested in equities.
- We’ve incorporated assets that benefit from high inflation like commodities and real estate.
