Round And Round

Round and round.  Stocks had a mixed close yesterday as investor enthusiasm was curbed by the potential for higher corporate taxes abroad.  A proposed 15% global minimum tax would even the playing field with tax-shelter countries but up the costs for the companies that have overseas interests.

N O T E W O R T H Y

The same old fears.  We all have an ingrained fear of inflation. In some corners of the world inflation can be a real problem, especially when it strikes at basic consumables like foodstuffs. Here in the US, inflation is most certainly upon us.  It is the result of a rapidly re-opening economy which has consumers competing for… just about everything, combined with supply chain problems… mostly caused by the pandemic-led rapid economic contraction.  It makes sense and it has been covered and covered and covered by mainstream media along with market notes LIKE THIS ONE.  But is inflation real?  The short answer is:  yes. Let’s take a look at the slightly-longer answer by looking at where inflation is happening.  Looking down the categories of last month’s Consumer Price Index we see annual price growth of +2.4% for Food, +25.1% for Energy, and +3.0% for everything else (there is actually a technical term for this category).  Let us get one level deeper in those broad categories for notable increases.  Under Food, Fresh Fruit (+6.2%)along with Meats Poultry and Fish (+2.7%) had notable increases. Also notable in Food was a +6.2% increase in Limited Service Meals & Snacks, which is a nice way of saying fast food.  In the Energy category, Unleaded Gasoline saw an annual price hike of +51.9% and Utility (piped) Gas jumped by +12.1%.  Moving down the list to the “everything else” category, Furniture and Bedding (+7.8%), Major Appliances (+12.3%), Jewelry and Watches (+9.5%), Used Cars and Trucks (+21.0), Newspapers and Magazines (+7.4%),and Sports Vehicles Including Bicycles (+7.2%) all displayed big annual increases. Getting into Services, we note increases in Car & Truck Rental (+82.2%), Motor Vehicle Insurance (+6.1%), Airline Fare (+9.6%),and Haircuts… yes haircuts (+5.9%).  If you rely on your car for work and transportation the numbers suggest some hardship… even if you choose to buy a bicycle to save some money, you won’t get too much of a break.  Planning on traveling after being shut in for the past 15 months?  That will cost you more these days.  You might be able to put off new furniture but you will pay more for natural gas services this year (thankfully we are heading into summer). You can probably forego jewelry purchases for now, but if you need to beef up your summer wardrobe, it is bad news if you are a man (Men’s Pants and Shorts +10.4%) and shockingly good news if you are a woman (Woman’s Apparel -0.5%), unless you are in the market for shoes (Women’s Footwear +3.1%).  I am sure most of these categories affect most of us in one way or another, so the slightly longer answer to the inflation question is also… yes.  These increases in prices are very real and will certainly begin to affect consumption in the months ahead.  Many economists along with the Fed believe that inflation is transient and will pass by the end of the year.  If they are correct, all will be fine.  However if inflation persists, history suggests that the Fed will ultimately have to aggressively mash on the brake pedal which can lead to another recession.  We don’t want inflation and we certainly don’t want another recession, so maybe that ingrained fear is justifiable, after all.  I wrote about inflation in my monthly newsletter last month (https://www.siebert.com/blog/2021/05/26/inflated-2/) and mentioned the ill-fated Marie Antionette for suggesting her subjects deal with inflated bread prices by eating cake. She allegedly lost her head for that suggestion but she might have been better off today as White Bread is cheaper by -2.3% and Fresh Cakes & Cupcakes are more expensive by +3.8%. Tomorrow morning, we will get the latest CPI number for the month and you better believe that the Fed will be watching… along with the rest of us.

THE MARKETS

Stocks had a mixed close as inflation fears continued and the potential for a minimum global corporate tax put pressure on stocks and bonds.  The S&P500 slipped by -0.8%, the Dow Jones Industrial Average fell by -0.36%, the Russell 2000 Index advanced by +1.43%, and the Nasdaq Composite Index rose by +0.49%. Bonds fell and 10-year treasury yields added +1 basis point to 1.56%.

NXT UP

– This morning the NFIB Small Business Index (May) slipped to 99.6 from 99.8, falling short of expectations. 

– JOLTS Job Openings (April) may have risen to 8.2 million from 8.123 million.

– The Treasury will auction off $58 billion 3-year notes.