Transcript:
Tom Vaughan:
Hello, everybody, welcome to Thursday, the S&P 500 was up almost a half percent today. And the big news today was the release of the Consumer Price Index, it’s a major index that is used to look at how much inflation we might be having. And today it was up 5% higher than it was last May. And that’s a big number actually have to go back to 2008. To see that kind of jump, you know, in one year, but last May was in the middle of the pandemic, and prices were actually going down. So year over year comparisons right now aren’t as accurate as normal. But month over month, two comparisons are probably still worth looking at. So if you look at, you know, the movement from March to April, which was the last report point 9% growth, that’s pretty high. This time, from April to May, when the report that came out today was that point 6%. So that’s better, maybe things are slowing down a little bit, but it’s still very high. If you had kept going at point 6%, for a full year, you’d be at 7.2% for the year. And the Federal Reserve has a target at around 2%. And they’re willing to let the market and the economy run hot before they start to make adjustments to their bond buying or their interest rates. But that’s one of the fears. And so normally, you see the market kind of reacting negatively to that. But not today. And let me show you something here, I think is very fascinating. I talked a little bit about this yesterday.
So this is the 10 year Treasury market, okay. And that’s the current yield 1.46%. And here’s the chart of the yield or the interest over the last three months. And you can see here at the beginning of the year, boy, things just really took off. And we really, really went up a lot and hit a high here, you know, at the end of March. Well, but we look at what’s happened right now, these highs are getting lower and lower and lower. And then we kind of set a low down here that we broke through yesterday. And we continue down today. So what the bond market is saying is that it’s not worried about inflation, even though we just had the report and it was fairly high. And you know, even on historical basis was fairly high, the bond market yield is going down. And so the bond market is signaling that it is looking at inflation as possibly temporary, or at least with what we know so far, not as bad as everybody thought it might be. And so that’s very fascinating. So that if you see what happened to the market, here’s today, the pieces that did the best were the growth portion. So again, in a high inflationary environment, these actually should do fairly poorly. But the bond market is signaling that doesn’t feel like inflation is going to be a big threat here, at least in the short term. And we saw a pretty good move here and a kind of a selling off of the value, which has been doing quite well, if you look back over the last three months, these are two of the bigger areas that today’s sold off. And again, these areas, this kind of mid cap and small cap value, are the more economically sensitive.
So if the economy grows quickly, and if there’s fire inflation, you’ll generally see these areas doing better in a higher inflationary environment. And also a lot of the reopening stocks that we talk about all the time happen to be in this category also. So really fascinating to see, you know, what has happened here, were my numbers on the CPI, bond market is okay with that starts to actually lower the interest rates, which would mean that it’s not as frayed of inflation. And we start to see the growth things do well. So what we saw today, within our accounts, for example, the taxable accounts, we have still have a lot of those growth pieces, we’ve got Apple and Microsoft, and all of those pieces that were quite green today, those did quite well, our models are more geared towards the reopening and inflation sensitive area, we did make a couple of changes to those, you know, we’re always making changes to kind of balance that out. But but they didn’t do as well today. So you don’t have to wait and see how this plays out. But these are really important pieces. And again, I’ll mention like I said yesterday, keep an eye on that 10 year Treasury yield kind of gives you a really good idea, you know, for what might be coming in terms of inflation.
So I think one of the things that they saw on the inflation numbers that made him feel better was that roughly a third of the increase in inflation had to do with car prices and us car prices. And there’s a big demand, you know, big shortage due to, you know, the chip shortage that’s happening. And so, you know, once that works, its way out. You know, I suppose the market is looking at that and say, okay, that’s going to be temporary. There is one big plant that burned down in Japan that’s supposed to be coming back on in July. So I think these are things that you know, they’re anticipating as far as that goes. So, very interesting day, you know, something to watch for and continue to watch and see what happens and look forward to seeing you tomorrow. Thank you very much.