Even though the delta variant has many areas reconsidering reopening & masking protocol, the world’s economic rebound is in full force. The U.S. economy added 943,000 jobs in July, unemployment fell to 5.4% from 5.9%, and global earnings estimates continue being revised upward. These are all positive themes.
The underlying theme giving some investors pause is inflation. Monthly inflation numbers have continued to lurch upward, despite the Federal Reserve’s insistency that it’s “transitory”.
Will prices continue higher? They could. We just passed a $3.5 trillion bill immediately after a $1 trillion infrastructure bill. This type of fiscal policy injects a whole lot of dollars into and through the banking system that we’ll have to borrow to finance. With more dollars chasing the same amount of goods and services available, prices tend to get pushed up.
But then again, many of the price increases we’ve seen recently are supply chain oriented. Computer chip shortages have driven up used car prices. Lumber costs are still high as there’s simply not enough available to supply the glut of home improvement projects. The common thread here is that factories and manufacturing facilities are still crawling back to full capacity. Many workers used the pandemic as an opportunity to change careers or jobs. Some decided not to go back to work at all. So while prices of the goods & services we all enjoy do continue to march higher, the real question will be what happens once capacity is truly back at full strength.
Here’s this quarter’s market review.