By Jeff Buice, Partner and Certified Financial Planner®️ at GENCapital
There’s been a lot of market volatility lately with contradicting economic data — like a disappointing jobs report in early May that eased some inflation concerns, followed by a new inflation report a couple days later that showed the biggest jump in consumer prices in 12 years and sent the major indices tumbling.
You might be at risk for whiplash if you follow the market moves too closely nowadays.
So the question becomes, what do you do? More often than not, the correct advice is: not much. Avoid the near term noise and try not to get wrapped up and distracted by these day-to-day market fluctuations by staying focused on your medium range and longer-term investment strategy that aligns with both your life and financial goals.
Corporate earnings were strong in the first quarter, employers are adding jobs, and the economy appears to be fundamentally sound.
But there’s a lot of noise with supply chain disruptions — from the Suez Canal blockage to weather disruptions in Texas and the Colonial Pipeline shutdown that caused a gasoline shortage — on top of mixed signals on consumer prices, covid trends, employment and how people are spending their stimulus checks.
Because there isn’t a perfect alignment on all those data points, some investors are getting jittery.
Let’s unpack the 4.2% increase in the Consumer Price Index for April.
The big uptick surprised everybody, including Federal Reserve Vice Chairman Richard Clarida, who acknowledged this: “This number was well above what I and outside forecasters expected.”
The Fed’s policy is to maintain inflation around 2% and they’ve said that larger increases would be transitory as the economy recovers from the global pandemic.
But a big piece of the April increase was from a 10% jump in used car prices, in addition to double-digit gains in things like hotels and airplane tickets as consumers start taking vacations after being cooped up in quarantines for more than a year and corporate travel resumes.
Additional economic quirks like lumber prices spiking nearly 300% over the past year as demand outstripped supply are also creating more noise in the numbers.
Many economists and investors will be closely watching the inflation figures for May to determine whether April was truly a blip, or a bellwether for a more sustained runup in consumer prices.
So what should you be doing right now?
Some investors are rushing to the so-called “inflation winners” like commodities such as copper or steel. Others are hunting for opportunities in the tech or housing sectors, or searching for gains in the leisure travel market.
We’re advising clients to stay true to the customized long-term financial plans we’ve created for them based on their specific financial goals, wants and life circumstances. Those plans include a sound investment strategy that is risk-adjusted and takes into account these short-term economic disconnects and wild moves in the markets.
The important thing is to avoid knee-jerk reactions or irrational decisions.
The S&P 500 dipped to 3,700 in February when the economy looked a bit wobbly and many parts of the country were grappling with record coronavirus outbreaks. And even with the recent drop from the surprise inflation report, the S&P 500 has rebounded to 4,100 as I write this article.
If someone had pulled $100,000 out of the market during the February decline, they would have missed the opportunity for a $10,000 gain since then as the market rose.
In these times of market fluctuations, the best investment strategy is usually simple: stay calm and stay the course.
ABOUT THE AUTHOR
Jeff Buice is a Partner and Certified Financial Planner®️ at GENCapital, a wealth management firm with a concierge approach to investment management, financial planning and business advisory services for individuals, families and organizations. The team of trusted professionals at the Atlanta-based firm is committed to serving clients over the long term as they build generational wealth.
GENCapital is a wealth management firm offering investment management, financial planning and business advisory services for individuals, families and organizations. With a concierge approach, extensive resources and generations of experience, we go beyond traditional investment strategies and partner with you to deliver a plan customized to your goals. Based in Atlanta, Georgia, our team of qualified and reliable professionals is committed to developing long-term relationships and building your wealth for generations.
For more information, contact us.