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After a rough start, the stock market rebounded mid-week to turn in a solid performance. As earnings season got under way, all three major indices posted their biggest weekly gains in months. U.S. Economic numbers on the retail front also helped stimulate buying demand. Overall, 8% of S&P 500 companies have reported results for the third quarter. Of those reporting, 80% have beaten analysts estimates according to FactSet. While earnings season is just getting started, we welcome the good news and hope the trend continues for the remainder of earnings announcements.

We all know prices rise when supply cannot keep up with demand. Supply chain issues along with employers difficulty in finding workers, is what has been spiking inflation since the lockdown ended. The problem is, demand can snap back quickly while getting things moving again on the supply side of things tends to take longer. This is all compounded by employer challenges with hiring.

The Fed has said they believe recent inflation figures are “transitory”. According to Merriam-Webster, transitory means something that is; “momentary, passing, short-lived, temporary, transient.” While most analysts believe inflation spikes may be around much longer than the Fed would like, we have seen some interesting news that shows the supply chain may just be beginning to improve.

The chart below from Bloomberg shows the cost of shipping a 40 ft. container from Shanghai to Los Angeles last year (gold line) vs. this year (blue line). Since peaking in September the cost of container shipping has been dropping. Though shipping prices sill have a long way to go, it’s good news. More good news came from the announcement last week that the port in Los Angeles will be operating 24/7 to continue to help with the backlog.

Still, U.S. inflation accelerated last month at the consumer level to rates not seen in more than a decade. August seasonally adjusted 0.4% increase was higher than the 0.3% reading in August. On a year over basis, what consumers pay for goods and services rose 5.4%. The U.S. is still more than able to service the debt we have taken on. However, it must be addressed at some point.

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The Markets and Economy

The International Monetary Fund has cut their global growth forecast citing supply-chain disruptions and health concerns caused by the spread of the Delta variant.
The Labor Dept. reported that 4.3 million workers quit their job in August, up from 4 million in July. The number, the highest since December 2000, shows the challenges employers are facing as they grapple with over 10 million job openings.
China’s real estate market may be in for more trouble. According to Nomura Holdings, Inc., China is entering the final stage of one of the world’s largest real estate building booms in history. Nomura estimates that $5 trillion in debt was taken on by developers when times were good. That debt is double what it was at the end of 2016. Evergrande’s problems may just be the tip of the iceberg. Latest September home sales figures for developers are down 20-30%.
According to the Department of Labor, inflation for the trailing 12 months ending 8/3/21 was up 5.3%. That was the highest rolling 12-month reading in 31 years.
Social Security benefits will rise a whopping 5.9% next year for recipients. The increase in the cost-of-living calculation is due to the sharp rise in inflation.
In a continued effort to steer China’s economic system away from Western-style capitalism, president Xi Jinping has launched a sweeping round of inspections of financial institutions. The 25 institutions targeted are at the heart of the Chinese economy and the most extensive examination of a sector in almost 10 years since Xi has come to power.
U.S. workers are beginning to slowly return to the office. With Covid-19 infection rates dropping again, office-building use has been increasing steadily. On Labor Day, an average of 31% of the workforce was back in the office.
By October 8th, that figure had climbed to 36%.
By the year 2025, 25% of all new automobile sales in China are projected to be electric vehicles.
Sales at stores, restaurants and online venues rose a seasonally adjusted 0.7% in September from the previous month. The healthy numbers announced by the Commerce Dept. shows persistently strong demand by U.S. consumers.

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results.

Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Securities offered through Triad Advisors, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors.

David Kover on October 18th, 2021

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Supply Chain Issues Turn the Corner