Inflationary fears vs. the wind in our backs

By Morgan Christen, CEO, Spinnaker Investment Group

Since our inception, clients have asked us, what is a Spinnaker? To get technical, it is a large, usually triangular sail flown by a boat as a headsail when running before the wind. In other words, a sail to use when the wind is at your back. After a bit of choppy weather a few weeks ago when Chairman Powell admitted the Fed may need to move rates a year sooner, seas have calmed, and the market is flying the spinnaker proudly.   

Courtesy of Spinnaker Investment Group

The powerful wind at our back includes strong economic growth, solid earnings, low interest rates and a bond market that is not reacting to the “threats” of inflation. We are currently in the inflation is “transitory” camp. Meaning, we do not think the high levels will persist. Already we are seeing a pullback in commodities as the chart below illustrates. 

Charts courtesy of Spinnaker Investment Group

Futures performance chart shows two-month and two-year returns

There are areas such as wages that will not be transitory; once those move up, they will not move down. There is a bit of push and pull regarding wages as we saw a record high number of job openings at the end of April, sitting at 9.3 million. Companies are offering higher wages and additional compensation to lure in employees, but with all the stimulus, many are not taking the bait (as indicated in the job opening numbers). Additionally, more Americans quit in April than any other month on record. Many quit for higher wages, while some quit for flexible work hours (office vs. home). 

We are not ready for higher prices and companies know that, so they resort to trickery. Welcome to more shrinkflation, when companies reduce the size or quantity of their products while charging the same price or even more. 

Read the full article in Stu News Newport here: https://www.stunewsnewport.com/index.php/2-uncategorised/11700-inflationary-fears-vs-the-wind-in-our-backs-072321