Inflation, Interest Rates and Income

I am writing to you this week from Chesapeake, Virginia, where I stopped to visit my daughter and grandson, Jack. He’s 7 now and I try to see him every term. They are moving so fast growing up these days. We are now deep into a Harry Potter phase, although Minecraft and the dinosaurs are very much in play.

I suspect you are tired of the news regarding the impact of the (hopefully) waning pandemic and the rampaging Russian invasion of Ukraine. Me too. It looks like we’re taking a break on Covid-19, even though I’ve worn a mask on planes and at airports that come here. Russian atrocities appear to be continuing with little means to project an outcome. However, I will continue to focus on how these and other variables might affect our investment accounts and access to income.

First, we hear a lot about the Federal Reserve these days. Their mandate to “manage” inflation is under siege. We have just experienced their first highly anticipated interest rate hike. To give some perspective, in February the 10-year Treasury closed above 2%. In fact, a quick glance at a Yahoo! Finance chart will show it at around 2.4% by the end of this week.

It hasn’t been above 2% for years and next week I will provide you with data showing how unusual it has been! The good news is that almost everyone expected this increase and many more to follow. The bad news is that it is not significant enough to provide savers (as opposed to investors) with a sufficient increase in their certificates of deposit or savings accounts to make a big difference in the growth or income of their savings. .

Also, when talking about inflation, we usually talk about it in terms of the consumer price index. You may know that according to the Department of Labor, it was up 7.48% year over year as of 01/31/2022. Compare that with 2020 when it was only up 0.74%. You can blame it all on pandemic-induced supply chain issues, political politics, global conflicts – take your pick. Right now, the only group that’s probably celebrating are Social Security income recipients who spend less on consumer goods (gas, milk, bread, etc., etc.). At least they got a significant increase in their monthly checks. According to the Social Security Administration, the cost of living adjustment (COLA) for 2022, based on 2021 data, was 5.9%. This is the largest increase in 40 years. I know a lot of people who welcome these numbers! And I haven’t heard the word “transitional” in reference to inflation in a while. We’ll see all of that.

I tend to find stock market fluctuations much more interesting. Perhaps it’s the access to tax-advantaged dividends that just strike me as – at least – a preferred source of income over savings accounts and bonds. This week, I caught up with Philip Orlando, Senior Vice President and Stock Market Strategist at Federated Hermes, to hear his current view on the stock market. In his weekly commentary, he alludes to the surprisingly positive reaction to equities recently. Although we are still in negative territory for the year (as measured by the Standard and Poor’s Index), last week it climbed more than 6% – in this week alone! This is the market’s best weekly performance since November 2020. Although they warn that a rally of this magnitude could be a “headache” and expect this period of volatility to continue. They continue to advise a defensive investment strategy. One that leans toward a concentration in relatively cheaper and less risky value stocks that enjoy higher dividend yield support. I am okay.

Just for good measure, I’ve also checked with Nuveen Investments via their weekly commentaries to make sure they’re maintaining an air of optimism regarding the stock market this year. It’s very easy to get upset with the current volatility and global turmoil that constantly dominates the news cycle. However, Saira Malik, chief investment officer and head of the team overseeing their global outlook, argues that US economic data still supports healthy (albeit slightly slower) growth. They point out that the very important ISM manufacturing index remains firmly in expansion territory. At its current level, the index is compatible with economic growth (gross domestic product) of around 4.1%. That’s enough to maintain an optimistic outlook during this year when it comes to a well-managed investment account. We walk painfully.

The opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations to any individual. To determine which investment(s) may be suitable for you, consult your financial advisor before investing. The economic forecasts presented in the presentation may not develop as expected and there can be no guarantee that the strategies promoted will be successful. Referenced performance is historical and does not guarantee future results. All indices are unmanaged and cannot be invested directly. Investing involves risk, including loss of principal.

RFG Advisory and its investment advisor representatives do not provide tax, legal or accounting advice. This document has been prepared for informational purposes only and is not intended to provide, and should not be relied upon, tax, legal or accounting advice. Please consult your own tax, legal and accounting professional for advice on these matters.

Visit us at www.planinvestinspire.com. Tommy Williams is a CERTIFIED FINANCIAL PLANNER™ Professional of Williams Financial Advisors, LLC. Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. Advisory products and services offered by Investment Advisory Representatives through RFG Advisory, a Registered Investment Advisor. RFG Advisory, Williams Financial Advisors, LLC and Private Client Services are unaffiliated entities. The branch is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105.

Leslie M. Gill