Summer is fast approaching. Based on recent temperatures, it feels like it already started. The beginning of summer coincides with the end of the school year. If you know of anyone graduating from school this year, you may want to share George Saunders’s Advice to Graduates. You’ll find it a worthwhile read. In the speech, Prof. Saunders talks of regrets. What does he regret most in his life? Failures of kindness.
Prof. Saunders suggests that when we look back on our lives, we remember those who were the kindest to us most fondly. He also discusses how we become kinder as we age. Prof. Saunders has been on the faculty of Syracuse University since 1997. He gave this speech to 2013’s graduating class. You can watch it here. You can find another famous – though hypothetical – commencement speech here: Wear Sunscreen.
While investors remain concerned about inflation, stocks continue to rally. The S&P 500 Index closed Thursday at another record high. The index is up 1.4% so far this month; 6.7% quarter-to-date; and 12.9% year-to-date. The S&P 500 bottomed on March 23rd of last year during the pandemic’s early days. Since then, the Index has surged. It's close to 90% higher.
While stocks continue to rise, the pace of their gains has slowed. Investors are balancing optimism about the economy’s recovery against worries about inflation and supply shortages. According to Thursday’s Labor Department data, prices rose 5% year-over-year in May. This was the highest annual inflation rate in nearly 13 years. But year-over-year comparisons may hold less value given the extraordinary pandemic-related circumstances.
Investors are attempting to determine whether the acceleration in prices will fade away or stick around for a while. If inflation continues, the Federal Reserve could scale back its efforts to stimulate the economy. It could also raise interest rates.
When the pandemic started, reduced demand caused prices for some goods to fall. But the government’s stimulus payments and reduced spending on services such as travel and leisure activities left many flush with cash. As discussed in this week’s first article, many materials are in short supply. This helps push prices higher.
Among the items in short supply are copper, iron ore, and steel. Semiconductor shortages are impacting many industries. Auto manufacturers have blamed semiconductor shortages for temporary cutbacks in vehicle production. The pandemic’s after-effects have also contributed to lumber shortages. This week’s first article cites examples of other products in short supply.
More than 90% of the respondents in Barron’s April “Big Money” poll expect inflation of at least 2%-3% by 2021’s end. Only 7% of respondents believe inflation will be lower at year-end. Four times that amount see an inflation rate exceeding 3%. It seems that inflation is priced into the market.
A couple of factors argue against sustained inflation. First, we have not seen significant increases in wages. Second, the government’s stimulus payments pumped a lot of money into the economy. The likelihood of further government aid seems low. Plus, unless you believe in Modern Monetary Theory, the government’s growing debt will have to be repaid.
None of us have a crystal ball that allows us to forecast the future with any degree of confidence. Prognosticators are often wrong. Against this backdrop, we remain focused on our process and maintain our long-term focus. Our long-term market outlook continues to be positive.
Click here for a video overview of this week’s content.
Here are the links to this week’s articles as well as a brief description of each:
1. The World Economy Is Suddenly Running Low on Everything. When the pandemic started last March, many consumers were panic buying. That contributed to surprising shortages of goods such as toilet paper. Today, with the economy on the rebound, we find companies looking to stock up instead. Shortages, transportation bottlenecks, and price spikes are nearing the highest levels we can remember. Concerns that a supercharged global economy will stoke inflation continue to rise.
2. To Kickstart a New Behavior, Copy and Paste. Most of us find changing behaviors difficult. Do you? The next time you’re falling short of a goal, look to high-achieving peers for answers. You’re likely to achieve success more easily – and faster – if you can find someone who’s already doing what you want to do. Try copying and pasting their tactics. It can lead to better results than would come from letting social forces influence you through osmosis.
3. Secret Sauce. At its core, retirement means retiring from work. But this article’s author notes that in reality, a proper understanding of “work” provides the key to a successful retirement. The process starts with two somewhat contradictory key questions: “What is about work we might not want to lose… and what is it about work that we want to eliminate?” The author describes five work-related rewards we should strive to hold on to. He suggests using these insights to design an ideal retirement. Check the blog for his six suggestions you can use to improve your life in retirement.
4. How Your Self Talk Can Make or Break Your Future. We may not realize it. We may not want to admit it either. What’s that? We talk to ourselves. Not only that. We listen to what we say. What do you tell yourself on a daily basis? Self-talk has an important influence on our lives. How? It can make the difference between seeing our dreams come true or having them remain dreams. We can talk to ourselves in ways that allow us to thrive. We can also make ourselves stagnate. Consider asking yourself questions rather than making statements. Confused? Check out the article. It can help you talk to yourself in ways that can increase your chances of success.
5. 10 Things You Shouldn’t Care About as an Investor. When it comes to investing, less can often be more. It can be easy to fall victim to information overload. If we want, we can see how our portfolio’s value changes from second to second. Focusing too closely on our portfolios can keep us from getting things accomplished. We must filter out what we shouldn’t care about as investors. This article shares 10 things you may want to pay less (or no) attention to. In my opinion, the best was saved for last. It highlights something I discuss with clients and prospects all the time. “The whole point of investing in the first place is achieving your financial goals, not beating the market.” In other words, you want your investments to earn enough to allow you to live the life you desire in retirement. Taking on too much risk can keep that from happening.
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