INFLATION HAS PEAKED AND IS HEADING DOWN HARD | CROUCH CONNECTION| April 21st, 2023 "ADV"

INFLATION HAS PEAKED AND IS HEADING DOWN HARD

Okay, that is a bold statement and if you pay attention to the media pundits, you may think there’s no way it will happen fast. But there are several reasons it could be correct.

First, even the inflation data which comes from the Census Bureau has finally begun to drop. From a high of almost 10% in 2022, the most recent number for the Consumer Price Index showed a year-over-year increase of only 5%. The official numbers showed an 8.2% increase in “shelter”, which consists of rent and utilities. Therein lies the reason for our optimism.

33% OF THE CPI IS RENT

Barry Sternlicht is an American billionaire and the co-founder, chairman, and CEO of Starwood Capital Group, an investment fund with over $60 billion in assets under management. He is also chairman of Starwood Property Trust which owns over 125,000 apartments in the US. He was interviewed on CNBC on April 4th and made some very enlightening statements:

I think inflation is going to drop hard, and there’s a CPI slide that shows why it is all about the rent component of CPI. (Last month’s official data) shows an almost 10% rise in rental rates. In fact, rents are falling, and if you correct for this…it will take headline inflation from 4.43% to 2.6%.

There’s slack in the way the government reports rental data and this is 33% of the CPI…there’s a lagged effect like four to six months. You will see this in late summer…”

This may be why the stock and bond markets have been going up for two quarters in a row despite all the negative headlines. Although the market bottomed on October 13, 2022, six months ago, most of our clients don’t seem to feel like we’re making much progress even though the Dow Jones Industrial Average is up over 5,000 points over that time.

BUT WHAT ABOUT THE BANKING CRISIS?

J.P Morgan CEO Jamie Dimon, one of the most highly respected bankers in the US, was interviewed last week and was asked if more bank failures might come. He said he didn’t know…

“but if there are, I know honestly they’ll be resolved, and it will probably be the last of them. I think we’re getting near the end of this particular crisis.”

“BETTER THAN FEARED”

That was the assessment of Dan Ives, analyst for Wedbush Securities, about their recent channel checks on Microsoft’s cloud business… “better than feared” projecting a 30% annual growth rate in 2023 for their web services business. In earnings report this week, Carmax also reported profits “better than expected”, more than double what analysts had predicted.

First quarter quarterly earnings reports will be flooding the market for the next few weeks, and the expectations for those earnings are NOT very good. We will be watching closely, and given that we haven’t seen any weakness in the US consumers yet, there is a strong possibility that we will be hearing many other reports that are “better than feared”. That bodes well for the market rally to continue.

THIS IS A MARATHON

Even though the stock market can be affected by various economic and political factors, which can lead to fluctuations in stock prices, these fluctuations are normally temporary. Sticking with a well-researched diversified portfolio can provide significant long-term returns.

When you invest in a stock, you are essentially buying a small piece of ownership in that company. By investing in a variety of stocks across different industries, you can spread your investment risk and reduce the potential impact of any one stock or industry performing poorly.

Also, investing in the stock market is a great way to take advantage of compound interest. As you continue to invest in the stock market over time, the returns you earn on your initial investment will also earn returns. This compounding effect can significantly boost your overall returns over the long term. Lastly, the stock market allows you to invest in companies that have the potential for significant growth over the long term. By investing in innovative and forward-thinking companies, you can benefit from their growth and success, potentially reaping significant returns on your investment. Investing in the stock market is the best option for achieving long-term results. While it can be subject to short-term volatility and fluctuations, the historical returns, diversification opportunities, compound interest, and growth potential make it a sound investment strategy for those looking to build long-term wealth.

WRAP UP

This is why we always encourage investors to focus on the long run and try to ignore the current “news”. I rarely find anyone that believes that stocks will not be higher two years from now. I also haven’t found anyone anywhere who can reliably anticipate every move in the stock market, including Warren Buffet. He doesn’t even try.

Patience should pay off at times like this. We believe your patience with this market will pay off again. Call us if we can help with your concerns.

Sincerely,

Dave Crouch Kim Blackburn Kay O’Connell

Registered Principal Branch Operations Manager Financial Advisor

Buffett Quote:

“The most common cause of low prices is pessimism—some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces.”

Warren Buffett

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Aspen Grove Asset Management is not a registered broker/dealer and is independent of Raymond James Financial Services.