May 2021 Financial Markets Summary
Have you noticed paying a little more at the grocery, your favorite restaurant, home improvement store or at the pump lately? Many companies chose not to pass along price increases last year due to COVID-19. However, consumers are now experiencing inflation throughout many parts of the economy. At Berkshire Hathaway’s annual meeting last week, Warren Buffett said “we’re raising prices, people are raising prices to us, and it’s being accepted. It’s an economy really that’s red hot, and we weren’t expecting it.”
Wall Street Journal’s James Mackintosh recently suggested the following five reasons why he feels inflation will be coming down the pike.
Central banks, led by the Federal Reserve, are now less concerned about inflation
- “The Fed has adopted a new, softer target of average inflation of 2%, meaning it can overshoot for years to make up for the past decade’s misses.
Politics have shifted to spend even more now, pay even less later
- Governments around the world have stepped in to provide stimulus and larger spending packages over the past few years. This increased spending is eventually expected to cause inflation.
Globalization is out of fashion
- Free trade was a given over the past 20-30 years. “There are still bilateral deals being agreed to, so free trade isn’t dead. But at the very least the pace of globalization has slowed.”
Demographics worsen the situation
- According to the Census Bureau, the U.S. in the past decade recorded the slowest population growth since the 1930,s. With slower growth, workers are able to demand higher wages which eventually results in higher prices to the end consumer.
Empowered labor puts upward pressure on wages and prices
- Unions are starting to gain more support which could again create higher incomes and prices.
Inflation has been well below average since the Global Financial Crisis in 2008. We are not suggesting that we experience high inflation like many saw in the 70’s and 80’s, but it could certainly creep higher than the Fed’s 2% target over the next few years.
| Asset Index Category |
Category |
Category |
5-Year |
10-Year |
|
3-Months |
1-Year |
Average |
Average |
|
| S&P 500 Index – Large Companies |
12.5% |
43.5% |
15.1% |
11.8% |
| S&P 400 Index – Mid-Size Companies |
16.4% |
65.5% |
13.3% |
10.4% |
| Russell 2000 Index – Small Companies |
9.3% |
72.9% |
14.9% |
10.1% |
| MSCI ACWI – Global (U.S. & Intl. Stocks) |
9.1% |
48.4% |
13.8% |
9.2% |
| MSCI EAFE Index – Developed Intl. |
7.7% |
39.9% |
8.9% |
5.2% |
| MSCI EM Index – Emerging Markets |
1.7% |
48.7% |
12.5% |
3.6% |
| Short-Term Corporate Bonds |
0.1% |
4.6% |
2.5% |
2.0% |
| Multi-Sector Bonds |
-1.9% |
-0.3% |
3.2% |
3.4% |
| International Government Bonds |
-4.0% |
0.7% |
0.8% |
0.1% |
| Bloomberg Commodity Index |
12.8% |
48.5% |
2.3% |
-5.8% |
| Dow Jones U.S. Real Estate |
16.7% |
33.6% |
9.3% |
9.1% |
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only. Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy. It is provided with the understanding that no fiduciary relationship exists because of this report. Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice. PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice. If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives. All rights reserved.