Home About Archives RSS Feed

@theMarket: Inflation Fears Weigh on Investors

By Bill SchmickiBerkshires columnist
Most stocks took it on the chin earlier this week. Technology shares lead the rout, but it didn't take long before just about everything else followed tech lower. By the end of the week, it was as if nothing had happened. That's called "chop." Get used to it.
 
The Consumer Price Index (CPI), which investors use to gauge future inflation, took the lion's share of the blame for the downdraft in equities. Economists had warned that we should expect a higher monthly reading (0.2 percent) for April, but the data came in at 0.8 percent. That computes to a 4.2 percent price gain year-over-year and was almost triple the rate that anyone had expected.
 
The market reaction was swift. Interest rates spiked higher along with the dollar, while equities dropped. The carnage continued for three straight days, taking the S&P 500 Index down 4.2 percent from its high of 4,238. Traders waited until the index hit its 50-day moving average at 4,056 before buying the dip. A relief rally on Thursday and Friday repaired about half the damage.
 
The CPI shock was not a one-off, statistical aberration, however. April's Producer Price Index (PPI) was also released this week, showing a jump of 6.2  percent versus a year ago. That was the largest increase since the Bureau of Labor Statistics started tracking the data in 2010. The monthly increase of 0.6 percent was twice the expected gain.
 
Economists were quick to explain that the numbers were not as bad as they appeared, since a year ago the economy was in a free fall.  Prices were at their lows during the pandemic, so comparisons were bound to be stronger than expected and will continue to be so for the next several months. They have a point and investors seemingly calmed down a bit.
 
Over the past few months, the fear of uncontrolled future inflation, fueled by governmental stimulus and a growing economy, has been a primary concern among traders. There is presently a tug of war between the Fed, which believes that this spike in inflation will be transitory at best, and the inflation bears who argue that there is no such thing as transitory.
 
This week, the market algo computers sold stocks on the CPI news and it took cooler heads a day or so to prevail largely on the news that the Center for Disease Control (CDC) announced they were lifting inside mask restrictions for those who have been vaccinated.  That revived the bulls, who piled into the re-opening trade once again
 
I had written last week that the best investors could expect from the markets over the next few weeks would be marching in place. I warned that there was also a real possibility we could experience a 5-10 percent decline in the S&P 500 Index and worse in the NASDAQ.  Well, this week we lost almost 5 percent in the benchmark S&P 500 and closer to 10 percent in a lot of technology stocks. Some of those high-flying, next generation stocks with no earnings or sales have experienced a 30-50 percent pull back in the last few weeks. Some may be tempted to get back into these names but now is not the time, in my opinion. Better to focus on value and cyclical stocks that have real earnings, dividends and a strong balance sheet.
 
It is after all, the month of May, and so far it has lived up to the admonition to "sell in May." It is quite possible that we will see the same kind of chop in the markets for a while. If so, I advise readers to sit on your hands, do nothing and ignore the noise. Otherwise, it could be you who ends up on the chopping block.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Big Y Hiring Spree
Governor Pushing for Two-Month Sales Tax Holiday
BCC Offers GED and HiSET Testing
Casey Throws No-Hitter in BABL
Pittsfield Firefighters Make Rescue From Burning Hubbard Avenue Home
Bidwell House Museum Reopens
North Adams Passes Budget for Fiscal 2022
Williamstown Fire District Looks at Recruitment Need
Pitsfield Council Demands Gun Violence Response Plan From Mayor Tyer
Pittsfield Park's Make Your Own Summer of Fun
 
 


Categories:
@theMarket (372)
Independent Investor (451)
Retired Investor (47)
Archives:
June 2021 (5)
June 2020 (2)
May 2021 (6)
April 2021 (9)
March 2021 (8)
February 2021 (8)
January 2021 (5)
December 2020 (6)
November 2020 (8)
October 2020 (7)
September 2020 (6)
August 2020 (6)
July 2020 (10)
Tags:
Markets Euro Deficit Banks Stock Market Currency Commodities Fiscal Cliff Bailout Housing Rally Oil Pullback Europe Stimulus Federal Reserve Energy Europe Interest Rates Crisis Election Congress Debt Economy Stocks Selloff Debt Ceiling Greece Jobs Taxes Metals Japan Wall Street Recession Retirement
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Retired Investor: Chlorine, Cars and the Supply Chain Challenge
@theMarket: Inflation Is Running 'Hot'
The Retired Investor: Want equality? Start With Better Jobs
@theMarket: A Churn at the Top
The Retired Investor: The Movies Return
The Retired Investor: Carbon Market Comes of Age
The Retired Investor: Gold Regains Its Mojo
@theMarket: Inflation Fears Weigh on Investors
The Retired Investor: A Labor Shortage Solution
@theMarket: Stocks Make New Highs