Weekly Market Update with Brian Ransom 11 February 2022
Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
Following the 9.7% decline in value for the S&P 500, the index has established a temporary sideways trading pattern over the last week and a half. We did experience a significant selling event on Thursday, February 10th.
Causing that sell off was a surprise announcement from the Bureau of Labor Statistics and their monthly inflation reading. Inflation continues to increase, ticking in the highest reading in 40 years despite the fact that supply chain issues have started to moderate. The announcement sparked a sell off in stocks and bonds, causing yields on the 10-year treasury to rise above 2%.
Included in that CPI reading is a significant spike in Flexible CPI, shown in brown here. While flexible prices are sometimes temporary, the magnitude of the spike is fairly alarming. More distressing, however, is the reading on Sticky CPI. Sticky CPI prices, shown in orange, are price increases that more permanent in nature and can include things like a bottle of coke, or a gallon of milk. Increases in Sticky CPI are usually indicative more long-term inflationary trends.
Just to caveat though, it’s important to put long term trends into perspective. For the last 10, 20, and 30 years, annual inflation has averaged 2.2%, 2.3%, and 2.4%, respectively. This includes the inflation seen over the last 6 months. All three rates are indicative of a healthy economy, long term, with ample production and minor price increases. In fact, since the first CPI readings in 1914, inflation has only averaged 3.1%, annually. This of course includes WW2, the boom era of the 1950’s, the inflationary periods in the 1970’s and 1980’s, and the inflation we are seeing today. 3.1% inflation, while slightly higher, is still indicative of a healthy economy. In fact, the time period with the highest level of inflation was the 1980’s when inflation was only 5.1% annually. While 5.1% is fairly high, it still puts everything into perspective. While the current inflation rate of 7.5% is high, long term this rate tends to mean-revert back into a healthy economy.
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Sources:
1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved February 11, 2022, from FactSet Database.
2.Bureau of Labor Statistics. Graphic for Economic News Release: “12-month percentage change, Consumer Price Index, selected categories.” Updated February 10, 2022. Retrieved from https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
3.Federal Reserve Bank of Atlanta. Inflation Project: “Sticky-Price CPI.” Updated February 10, 2022. Retrieved from https://www.atlantafed.org/research/inflationproject/stickyprice
4.Bureau of Labor Statistics. Archived Consumer Price Index Supplemental Files “Historical CPI-U, January 2022 database.” Updated February 10, 2022. Retrieved from https://www.bls.gov/cpi/tables/supplemental-files/home.htm
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