stock market thanksgiving meeks
Paul Meeks

Paul Meeks

Meeks’s Musings – A Stock Market Thanksgiving

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Despite the nasty rhetoric and the confluence of some very weird events (even for these times), investors should be thankful for their bounty this year. U.S. stocks as measured by the performance of the Standard and Poor’s (S&P) 500 Index are +25% before dividends through November 18 and a startling +110% from the COVID low in March 2020. Frankly, I am surprised by and so am increasingly skeptical that this bull market can continue, or at least that it can keep up this blistering pace.

My greatest fear is inflation. The most popular gauge of U.S. consumer price inflation, the Consumer Price Index (CPI) rose +6.2% between October 2020 and October 2021, which was about three times the rate that had prevailed before the pandemic and the pace at which most of us are comfortable. Fear the negative turn in consumer sentiment if inflation stays elevated because the consumer accounts for about 70% of our economy as translated by gross domestic product, or GDP. Even worse, last month the Producer Price Index (PPI), which tracks wholesale, or business-to-business, inflation, rocketed +8.6%. I do not worry as much about commodity inflation — yes, the price of a barrel of oil and those of other basic materials will fall when we straighten out the global supply chain — but I am more concerned about wages spiraling because that it a genie that may not be able to be put back in the bottle even after COVID. 

Many people, too many it appears, blame the “slackers,” or those collecting state and federal unemployment benefits instead of working, for the unusual and unprecedented mismatch between the millions of unemployed Americans and those who are available for work but choose not to. I have been studying this. What I have found is that this group only accounts for about a third of those idled. Another third includes those who are too scared of the pandemic to return to the workforce. The last group are those who are out because they lack childcare. Of course, these major factors and other minor ones have led to scores (i.e., too many millions) of early retirements. In the end, our economy grows in two ways. First, there are inputs, which are worker bees like you and me. Second, there is productivity. If we lose workers en masse, we must pull harder on the productivity lever to continue to grow. Therefore, while you may hate the technology titans in Silicon Valley you better hope that they keep innovating so that fewer American workers can do more.

Boeing, Charleston’s favorite son, well, at least at one time, may finally have its mojo back. There are two potential catalysts including the re-certification of the 737 MAX in China and a resumption in 787 Dreamliner deliveries likely in the first quarter of 2022. The latter aircraft is produced in North Charleston. Wish the company luck. Boeing needs it, its shareholders need it, and Charleston’s economy needs it.

I appeared on CNBC (Google me) the other day to “talk tech” like I have done weekly for too many years. The focus of that segment was the global supply chain snag, particularly the dearth of semiconductors and other components that have caused manufacturing companies worldwide to grind to a halt. For example, according to AlixPartners, the world’s automobile industry will sell 7.7 million fewer cars worth $210 billion this year for the lack of chips that can cost nickels and dimes. I follow and even speak with the managements of key semiconductor manufacturers. Bottom line: Do not expect much relief until well into 2023. Yes, 2023 and not 2022. Of course, the continued damage will not just be limited to Ford, General Motors, etc. It is a broader industrial “thing.”

Although investors seem to be focused on the latest spending bill churning through the U.S. Congress —  yes, the infrastructure and Build Back Better bills that will cost a total $3+ trillion also have my attention — I think that the most important announcement for all will be President Biden’s decision, which will be made any day, on who will be the next chair of America’s central bank, the Federal Reserve Board (Fed). Currently, it is led by Jay Powell. He was nominated by former President Trump and confirmed by Congress, but his term expires in February. Powell is the most important person in finance in the free world (and probably beyond). Why? It is because the Fed controls our monetary policy, which entails adding liquidity (think cash) to the U.S. economy to kick start it or withdrawing it to tame the inflation beast. Since its benchmark fed funds rate has been set in a range of 0.00%-0.25% since COVID reared its ugly head, of course, the Fed’s next move is to raise the rate. The key for the next chair will be to carefully manage how quickly and aggressively interest rates rise in this country because if they move too much too quickly “Katy bar the door” on this bull market as the prices of most assets including that of your stocks and home could tumble. Stay tuned for the Democrat president’s appointment. I am betting that Powell will be reappointed even though he is a Republican. If Powell does not keep his job, it probably will go to Democrat Lael (she) Brainard who has been on the Fed’s Board of Governors since 2014.

Investment Advisory Services offered through Independent Solutions Wealth Management, LLC, an SEC Registered Investment Adviser.
All opinions expressed by Paul Meeks are solely Meeks’ opinions and do not reflect the opinions of Independent Solutions Wealth Management, LLC (“ISWM”). You should not treat any opinion expressed by Meeks as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion for educational purposes only and does not constitute investment, legal or tax advice, an offer to buy or sell any security or insurance product; or an endorsement of any third party or such third party’s views. Meeks opinions are based upon information he considers reliable, but neither ISWM nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Meeks, ISWM, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Meeks statements and opinions are subject to change without notice. No part of Meeks compensation from ISWM is related to the specific opinions he expresses. Past performance is not indicative of future results. Neither Meeks nor ISWM guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. Before acting on information, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from an investment adviser.

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