The CPI number on Friday was a big disappointment. Core inflation slowed a bit, but that would be more meaningful if we did not have to eat food or use fuel to drive and/or heat/cool our homes. Panic has now taken over as the emotion of fear is in the driver’s seat.
While watching one of the stock channels at noon on Friday I witnessed a battle between the viewpoints of traders and investors. The traders being interviewed talked about needing to get out of the market and one proposed shorting the market, while the long-term investor being interviewed took a very different approach. The long-term investor pointed out that things look bad now and may get worse over the next month or two, but the second half of the year looks much better. Who is right?
To answer that question, you have to understand the short-term focus of traders vs the long-term focus of investors. Long-term investors may have some “trades” in their portfolio, but for the most part their portfolios are based upon risk tolerance, asset allocation and long-term goals and objectives. Looking through the lens of history, investors maintaining their long-term strategy has proven to be a wise decision.
However, there are times when investors may make slight tactical shifts in their strategy such as having a slight overweight to a certain sector or style. Are we approaching a crossroads where a tactical shift should be implemented? Maybe…but we need more time. The FOMC has a meeting this week and we will also get a look at PPI (Producer Inflation). How much will the FOMC raise rates? What will they say about their forecast for future rate hikes? What will they say about the chance of recession? It will all be watched and dissected very closely, but I am more interested in seeing the June CPI number that will be released in July.
The inflation problem is like a giant ocean liner. Inflation has been moving full speed ahead and we have pulled back on the propulsion. However, the weight of the ship and its momentum in the water keeps us moving faster than the current level of propulsion naturally would. Unlike an ocean liner, we don’t have the gauges to know exactly how much propulsion to pull back on and at what speed we will settle in at.
Clearly everybody was disappointed in Friday’s CPI report, and it is natural to want to just do something. However, whether it was the 2008-09 financial crisis, the Greek debt crisis, or the latest Covid sell-off in 2020, those who stuck with their investment plan were rewarded…in time.
Keep the faith!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.