Transcript:
Tom Vaughan:
Hello, everybody, welcome to Tuesday, the S&P 500 was down .75%. Today really was going okay, until we got the wholesale inflation number, which was at 9.6%, which is a pretty high number. And one of the questions that I got today was about, you know, question about why does the higher inflation numbers, you know, make the stock market go down. And there’s a couple different reasons. Number one, wholesale, inflation was expected to be lower, and it comes out higher, and so when something comes out at a different number than expectations, that there’s a reality adjustment, so that’s part of it.
The second part is really just the fear that higher inflation will affect company earnings. So if I have a product that I’m selling, and the things that I need to make that product, go up in price, and I can’t increase my price, because the consumer is, you know, kind of tapped out, we’ve had inflation for too long, then my earnings are going to fall. And that would affect the stock price, ultimately.
And so that’s one particular area, although the last one I think, is the most important. And that is these higher inflation numbers cause the Federal Reserve to start raising interest rates faster, cut back on their bond purchases faster. When the Federal Reserve is keeping rates low, and doing stimulus activities like this bond purchase -fantastic for the stock market -so I’ve had such good returns, we had interest rates coming down in 2019, 2020, and really, really low all the way through 2021. And we’ve had three fantastic years.
So as those rates start to come back up, it creates issues for the stock market in lots of different areas. But when you see a big number coming out for wholesale inflation, that makes the market think about the Federal Reserve, you know, might have to be more aggressive in their increases in rates. So we’ll find out some more about that tomorrow. When Chairman Powell does speak after they finish their meeting and see what he has to say. I would suspect that they’re going to be talking about cutting back on the bond purchases a lot faster and some of the other things but it’ll be interesting to see what the question and answer portion is like. So anyway, that’s the reason that the stock market adjusts to these types of numbers. And we’ll look forward to seeing what’s going to happen tomorrow. Thank you very much.