Market Update: August 11, 2021 Inflation Numbers Move The Market

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

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Transcript:

Tom Vaughan:

Hello, everyone, welcome to Wednesday. The S&P 500 was up about a quarter of a percent today, and the big news was around the inflation number that was reported today. So, the inflation was a little bit lower than expected, and it was a little bit lower than previous months, which in this environment is a good thing.


So, let me share my screen here, and I can kind of try to describe how the market looks at inflation, and what’s good about it, and where some of the problems are as far as that goes. And so I’m going to share here is a chart of the 10 year Treasury yield. This is from Yahoo Finance: This is going back five years, and this shows at any point in time when you bought a 10 year US Treasury, what yield or interest rate you might expect to get from that, and you can see it was going up here all the way through until about the middle of 2019. And in that particular environment, what that means is that the bond market thinks that the economy is going to be improving, right? And that’s a good thing. And we saw some pretty good stock markets in this timeframe. And then we saw the yield start to come down. They started to lower interest rates, just dealing with some of the issues that were happening. There was a china trade war going on that we had some problems in terms of economic, and so that was coming down again; 2019 turned out to be a really good year for the stock market.


Look at 2020, you can see that the yield fell dramatically. Again, Federal Reserve reduced rates all the way down to basically zero, trying to stimulate the economy. And down here in August of last year, basically a year ago, we hit the lowest point for an existence for US Treasury, a 10 year Treasury, at a half a percent. So but if you look, now, we’ve kind of had this trend, I tried a little trendline in here. And so again, probably pretty likely, we’re gonna get back to hear at some point in time and around 3% on a 10 year Treasury: That’s a pretty healthy number, nothing wrong with that. This was a half percent, which is really pretty incredibly low.


The trend is important. If you look here, that red line, if we continue to go along that trend at that pace, that’s going to work out pretty well. What you don’t want is to see the interest rates go too fast on the upside, and that’s exactly what happened here. And so we had this giant jump here. And this correlated to the vaccine coming out and being distributed at a very high rate. The case count in the virus at that time was dropping quite rapidly, and they put out that $1.9 trillion COVID relief package all at the same time, and the market really thought, “okay, we’re gonna end up in a high inflationary environment.”


It missed a whole bunch of things that were happening in the end: People work coming out of the house, to come back to work. We got all these open jobs, that slowed down the growth the economy a little bit, and then the supply chain issues that were happening, were kind of slowing down the economy a little bit. We ended up with it coming back down, and you can see right here, that it’s kind of bumping back up again. I think it’s probably going to reestablish this trend, and that’s because of the job numbers that came out on Friday, which were pretty good: 934,000 new jobs. And so there’s some more hope for economic growth as far as that goes.


And so that’s basically what you see here is that the bond market got kind of ahead of itself, thinking that the economy is going to grow faster, and that it really did. None of us have been through a pandemic before, so trying to figure out how this reopening is going to work is going to be really interesting. And then it’s kind of come back down more or less to this trend, and I think that trend will reestablish.


Again, when you look at the overall stock and bond market, and really kind of factor in the economy, you want to take a look at that 10 year Treasury rate and see where things are going: When it’s going up, especially in a nice even pace, which it essentially is now, then things are really good. That means the bond market thinks the economy’s going up, and that will benefit the stock market. When it goes up too fast, that can be somewhat problematic. And so we might get back to a point where things get too fast, but right now, we’re kind of at this balance point when we have the different pieces that are slowing the economy down, and the other pieces that our pushing economy forward. Infrastructure bill, and some of the different government spending is pushing it forward, consumers are coming back out and starting to spend that’s pushing forward. And then the Delta Variant and the people aren’t coming out of the home as fast as needed, to fill some of these jobs; that’s kind of slowing things down: Supply chain issues.


So right now, actually, the teeter totter is really, really good. It’s putting us right in the right spot. Eventually, there’s people probably do come out of the home and get back and take some of these jobs. And maybe the virus eventually starts to… who knows how long that’s going to take, but eventually starts to to reduce its impact on the economy. We probably will see a lot more economic growth there. And we’ll have to see if it heats up or not. So that’s going to be the issue.


I think that’s a ways away I’ve been saying for a while that I thought these other issues would happen, and that would slow things down enough to keep inflation in check. I still think 6 to 12 months from now, we’re still talking about similar situations, and maybe not a hyper inflationary environment, but we’ll have to wait and see what happens after that. All of this relates to what the Federal Reserve will do to try to fight this potential inflation. So right now, they’re not worried about it: They’re seeing it as transitionary, and actually, they seem to have been right. Again, I think right now, if you listen to Federal Reserve, you’re going to get some good information, in terms of where things might be going. So anyway, that’s what’s happening today. always an interesting timeframe, of course, and look forward to talking to you tomorrow. Thank you very much.

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.