Good Afternoon and Happy Spring!
Spring is such a beautiful and hopeful time of year when, in the words of poet Ralph Waldo Emerson, the earth laughs in flowers.
There is much to be hopeful and optimistic about as I write this newsletter:
-The US economy is stronger than ever. Corporate earnings are robust, unemployment is low at 3.9% and U.S. consumers are spending a lot of money!
-Inflation, while a thorn in the economy's side, is beginning to cool. April's Consumer Price Index reading showed price increases of only 0.3% over the previous month. That's the first time in quite a while that inflation numbers haven't come in "hotter" than expected.
-The stock market has been on a very nice upward trajectory over the last 18 months. Last week's positive news on inflation was welcomed by investors, pushing the Dow above 40,000 for the first time in history! While the Dow got all of the attention, the humble S&P 500 Index, a much bigger and better gauge of the US stock market, rose above 5,000 for the first time ever.
On the surface this is all great news but consumers continue to be confronted with unrelenting high prices for everything from groceries to real estate. Inflation peaked during the Covid years because of supply chain issues that couldn't keep up with demand. Supply chain issues have resolved so why are prices still so high? One of the primary reasons is higher wages. While higher wages are good news for workers, they can also lead to increased costs for businesses, which are then passed along to consumers via higher prices for goods and services. Energy prices, particularly for oil and gas, have been volatile. Even with some stabilization, higher energy costs impact the price of transportation and production, contributing to overall higher price levels. Finally, businesses have been reluctant to reduce prices because consumers continue to buy, even at higher prices. In other words, there hasn't been an incentive for businesses to drop prices.
Inflation is a problem that goes beyond consumer prices. Inflation has the power to erode our purchasing power but only if we are making the mistake of being too conservative. Being too conservative is actually a risk factor! Psychologically it may feel comforting to keep your nest egg, or significant savings, in a bank account or a CD but, a CD earning 5% while inflation is running at 3.5% doesn't give you much real return on your investment. On the flip side, the S&P 500 (the best representation of the US stock market), has returned just over 11% year to date. Nothing can outpace inflation like the long term return potential of the US stock market. The best defense against inflation is a balanced portfolio with both stock and bond exposure.
It can be challenging to view investing and the stock market in a positive way, especially when so much of our news is negative fear mongering. With that in mind, I wanted to share this.....I recently set up a Roth IRA for my teenage daughter who earns some income at a summer job. I'm thrilled that she's now showing some interest in investing. She asked me why the stock market is so important and what it means to invest. I explained to her that investing in the stock market is an investment in human ingenuity. It is an investment in our ability to discover, invent and create. Some of you might recall that the first cell phones were as big as a shoe box with a long antenna for good measure. Motorola made the first commercially available cellphone in the early 1980's. In 1996, the first smartphone was introduced by Nokia and featured email and rudimentary web browsing. In 2002 the Blackberry was introduced and in 2007, the smartphone revolution with the introduction of the iPhone. Fast forward to today and a little company called Apple has developed a new version of the iPhone that is small enough to fit into a pocket but is a mini computer that can call, text, scan, photograph, dictate, stream, game and so much more. In 1984 you could buy a share of Apple for $0.12. Today, a share of Apple stock is just under $200. That's innovation and a good investment!
Innovation is happening all around us, all the time. Artificial Intelligence is assisting with diagnostics, personalized medicine, and robotic surgeries that have improved healthcare outcomes and efficiency.Companies like Tesla and Rivian have pushed the boundaries of EV technology, offering longer ranges, faster charging, and cutting edge features. Companies like SpaceX and Blue Origin have made significant strides in commercial spaceflight with reusable rockets and plans for space tourism. If you're a NASA geek like me, you may be following the Perseverance rover as it explores Mars and sends back incredible images of the red planet. These innovations reflect the rapid pace of technological advancement over the past decade, reshaping industries and daily life. As these technologies continue to evolve, they will bring even more transformative changes in the years to come.
Human innovation is a testament to our resilience and creativity. Innovations not only improve our quality of life but also provide new opportunities for growth, development and of course, investment.
As we navigate the complexities of life and especially the financial landscape, it's crucial to maintain a balanced perspective. While it's important to be aware of potential risks and challenges, it's equally vital to recognize the opportunities and positive developments that lie ahead. Our role is, as always, to help you navigate these dynamics, ensuring your financial strategy is resilient and aligned with your long-term goals.
In a few short weeks we will be sending out 2nd quarter reports. If you would like to meet with us to reveiw your portfolio, please give us a call. Until then, wishing you all the best!
Johanna