Why is the Market Still Going Up with 6.8% Inflation?

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:

Easan Arulanantham:

So, you talked about, well, you know, “the market has saw 6.8% inflation, year over year. Why is the market still going up today? You know, I know expectations were seven plus, but I don’t feel like 6.8% versus 7 is that big of a difference?”


Tom Vaughan:

Yeah, I think there’s a couple things that are going on. And there’s one basic to understand. And this would be a great thing to get your head around if you can, when you’re looking at the markets and what might happen, especially in short term moves, there’s expectation, and then there’s reality. So when you look at what’s going on, probably on average, I’d say the expectation was that we would hit 7-7.1%, right? So some of the movement that we’ve seen coming into this day, has been reflecting on this higher inflation number. And so I’d say three quarters of a percent, three quarters of the movement of stock market is looking forward, and one quarter of the move in the stock market, these are just rounding guesses. But one quarter of the move in the stock market has really to do with the reality. So expectation is 7-7.1 reality at 6.8, oh. So now we get a reset in a positive way, in this case, the stock market comes up, if we would hit 7.5. And the expectation was 7-7.1, we would have seen a negative reset, because of the reality. So there’s this expectation, and this happens to individual companies constantly, you know, certain expectation for earnings. And they either beat that or don’t beat that expectation for the guidance that they’ll have going forward. And they either beat that or don’t beat that.

And that’s the how things are kind of adjusted in reality, as far as that goes. So I think you know, there obviously isn’t a significant difference between 6.8 and 7.1. It has more to end, we’re not seeing us huge run up in the market, either. But the adjustment we’re seeing here, it has to do with the expectations versus reality. And that that goes on all the time as far as that goes. So, you know, there’s some expectation that inflation is going to continue to be quite high. Well, if it isn’t, I think we’ll see some adjustments going forward to a better stock market, if it’s worse than expected, right, just long term, not just today. Let’s talk about November of next year, right? So I think things are really interesting. So November of next year, we have a couple things going for us that could create lower inflation. Number one, we’re not comparing ourselves to November of 2020, I think that’s a really big thing to understand. The number that comes out at 6.8 is year over year, November of this year versus November of last year, think about November of last year: no vaccine, mobility data was significantly lower, and the economy wasn’t where it was now or is now because of this, you know, reopening and people starting to live with the virus. But if we talk about November of 2022 to next year versus this November, could be a completely different outlook as far as that goes.

And I would bet anything that’s one of the major drivers of inflation is the supply chain issues, those become so much less a year from now. And so that those two issues kind of a year over year comparison that is more probably accurate. You know, and then this scenario of supply chain, I think labor continues to be a problem. And that you know that we’re increasing the price of labor, right? But that’s hard to get back. But I do believe supply chain issue resolves itself. So we could see some my overall guess right now is that the outlook for inflation for 2022 is higher than we might see it. And so that would create a positive impact on that adjustment. So if inflation comes out at 3%, in November of next year, and people think it’s going to be four or something higher than that, then, you know, we would see up again, that’s an adjustment to reality. That’s what’s happening today.

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
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  • thinkpipes®
  • Right Capital
  • YCharts, Inc.