The New Year has started off with a bang for all of us that are market watchers. Though the surrounding noise remains at a high decibel, investors continue to “look through” all that and trudge on. Though the Pandemic will not let up – the Omicron variant being highly transmissible – the general consensus seems to be that it will not last as long, nor be as deadly as our 2020 and 2021 experience. Time will tell on that, but for now investors have their mind on other things. Of course, that does not preclude us from exercising our God given right to get nervous when the Federal Reserve Chairman seems to change course. We’ve said all along to expect volatility.
On January 3, I sat in on a conference call with Brian Wesbury, Chief Economist at First Trust to check his New Year’s pulse. (You could stay ahead of me on his thoughts by staying tuned to his frequent appearances on Fox Business or CNBC). His take on the influence that Covid has on our daily lives (and the prospects for our investment accounts) is that it will be significantly less 12 months from now than it is today. It seems like everyone knows someone who has tested positive (vaccinated or not). Cases are at record highs, but hospitalizations and deaths are not. Good news for the market as it is “forward looking machine.”
You’re also questioning the fate of the President Biden’s Build Back Better Plan to increase entitlements and taxes. Wesbury contends that it is mired in the Washington, D.C. muck. It is still possible that a much smaller plan – something like a $1.5 trillion package could get passed – but that’s unlikely. The more likely case is something much smaller - or nothing at all. Imagine the relatively moderate Democrat in Congress being forced to vote on tax increases in an election year. With every passing week as we approach the mid-term elections that is going to be increasingly difficult. We’ll see.
And speaking of mid-term elections, history tells us the ability of the Biden Administration to get much of anything done is dramatically limited. The most likely possibility seems to be a Republican wave – perhaps a Tsunami. Hard to get a lot done in that environment when you need bipartisan support. That is a formula for gridlock, which you’ll recall the market often tends to favor.
On the topic of supply chains things seem to be improving. Business inventories are rising again – and they need to after all the empty shelves you saw in the past two years. It’s also hard to imagine chip makers not ramping up production to meet enormous demand.
Wesbury’s bet is that the Federal Reserve will raise rates only twice this year rather than the anticipated three increases. Either way, you will hear a lot about it and it should have minimal impact on your investment account. Perhaps the most important factor for us to consider is corporate profits which are now at an all-time high. That has been in large part due to government stimulus. Going forward, the primary expense which impacts profits is always labor costs. Seems higher wages could reduce corporate earnings which, at the end of the day, is the name of the game in the market investing world. However, First Trust still sees profit growth in a range of 10% - well below last year, but consistent with my other credible research sources.*
In case you were wondering, though I think the automobile inventory shortage is temporary, I finally “folded” and ordered a new car for my wife. The salesman predicts that this may be a new trend – that of ordering from the factory rather than wandering around the lot picking out shiny new cars. Less inventory cost for the dealer/manufacturer and the customer gets exactly what they want. Who wants to bet on whether it will be here in the prescribed 6 to 8 weeks – or perhaps 3 to 6 months? A new day has dawned. Apparently, now you don’t negotiate some concession off of the Manufacturers Suggested Retail Price (MSRP). You simply plead not to have a “dealer premium” tacked on top of that price! We Americans love our cars, so we’ll just see what the future holds in the terms of the car purchase process.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal.
RFG Advisory and its Investment Advisor Representatives do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. Please consult your own tax, legal, and accounting professional for guidance on such matters.
Visit us at www.williamsfa.com. Tommy Williams is a CERTIFIED FINANCIAL PLANNER™ Professional with Williams Financial Advisors, LLC. Securities offered by Registered Representatives through Private Client Services, member FINRA/SIPC. Advisory products and services offered by Investment Advisory Representatives through RFG Advisory, a Registered Investment Advisor. RFG Advisory, Williams Financial Advisors, LLC and Private Client Services are unaffiliated entities. Branch office is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105.
