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Weekly Market Update for November 12, 2021

by Jim Ulland

Inflation is a tax on the poor and the retired. Anyone whose income cannot rise at the rate of inflation is losing ground. Inflation is a cruel tax which hits those least able to respond. The result is a lower standard of living for those affected. The CPI for October (annualized) was at a 6.2% rate, the highest in a decade. For those who felt happy about getting a 5% raise this year, understand that with inflation at 6.2%, you went backwards. The Producer Price Index (PPI) was even scarier. It rose at an 8.6% rate. This implies that producer prices (PPI) will push consumer prices (CPI) even higher. Gasoline, food, autos, and wages moved higher. If the inflation persists, it will not end well.

Today’s inflation is largely demand-driven. This means that much of the Covid government spending and transfer payments are turning into consumer demand. Goods producers were not prepared for the demand surge. When they tried to respond, there were Covid-related worker shortages causing bottlenecks in critical parts like microprocessors. The sudden demand congested ports, which didn’t have enough truck drivers to haul the containers away, causing more delays, congestion, and shortages.

Energy costs spiked as producers hesitated to invest, fearing government regulation would make the investment unprofitable. This week’s threat from Congress to prohibit the export of oil and gas will raise the level of uncertainty and further restrain investment. Europe is in the same mess, having gone completely away from coal to rely on wind. This is generally a good idea if you have a back-up source of energy in case the winter is cold, or the winds are less than needed. Of course, Putin could threaten to reduce the supply of natural gas to Europe, which would cause immense pain.

Stocks spent the week trying to put the pieces of this puzzle together in an investment strategy. The task was complicated by the belief that stocks are already highly valued. If interest rates move up, as they did in the last half of the week, stocks will be under pressure, as will fixed income securities. Strong corporate earnings and stock buy-backs will cushion part of this blow.

The Fed, which implied it would not raise interest rates until the last half of 2022, does not know who the next Chairman will be. Current Chair Powell will be either reappointed or replaced. The announcement could come this weekend. The market does not need this additional uncertainty.

There are still 10,000,000 open jobs, so we do not expect the economy to rapidly deteriorate. Covid has been stubbornly unhelpful. Perhaps that will change soon. Maybe the bottlenecks in the supply chain will ease. Perhaps Congress will not pass another huge spending package. Any of these factors could determine the direction of the economy for 2022. That is why the investment picture is so complex.

This week’s market closed lower by less than 1%. The SP 500 was down -0.31%, the NASDAQ -0.69%. Monday the SP 500 was +0.09%, Tuesday -0.35%, Wednesday -0.82%, Thursday +0.06%, and Friday +0.72%. Our recommendation is for investors to stay in this market but increase the size of the companies in their portfolios and use more fixed income, especially our top-performing strategy.

Next week we will point out sectors that do relatively better in inflationary periods than others.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464