Inflation, interest rates and income

I write to you this week from Chesapeake, Virginia where I’ve stopped off to visit my daughter and grandson, Jack. He’s 7 now and I try to see him quarterly. They evolve so quickly growing up these days. We are now deep into a Harry Potter phase, though Minecraft and dinosaurs are very much in play.

I suspect you grow weary of the news regarding the impact of the waning (hopefully) pandemic and the raging Russian invasion of Ukraine. Me too. Seems we are getting a break on Covid-19, though I did wear a mask on planes and in airports coming up here. The Russian atrocities seem to grind on with little means of projecting an outcome. However, I will continue to focus on how these-and other variables- might impact our investment accounts and access to income.

First, we are hearing a lot from the Federal Reserve these days. Their mandate to “manage” inflation is under siege. We have just experienced their first highly anticipated interest rate increase. To provide some perspective, in February the 10-year Treasury note closed above 2%. In fact a simple glance at a Yahoo!Finance chart will show it at about 2.4% by the end of this week.

It has been years since it has been above 2% and next week I’ll provide you with data supporting just how unusual that has been! The good news is that most everyone expected this increase-and several more to follow. The bad news is that it not meaningful enough to provide savers (as opposed to investors) with a sufficient increase on their certificates of deposit or savings accounts to render much difference in either growth or income from their savings.

Further, about inflation, we typically discuss it in terms of the Consumer Price Index. You may know that according to the Department of Labor it increased by 7.48% year-over-year as of 1/31/2022. Contrast that with 2020 when it was up a mere .74%. You can blame all that on pandemic induced supply chain problems, political policies, global conflict-take your pick. As of now, the only group celebrating is likely the Social Security income recipients who spend less on consumer goods (gasoline, milk, bread, etc., etc.). At least they got a meaningful raise in their monthly checks. According to the Social Security Administration the Cost of Living Adjustment (COLA) for 2022-based on 2021 data- was 5.9%. That was the highest increase in 40 years. I know a lot of folks that welcome those numbers! And I haven’t heard the word “transitory” when referring to inflation in a while. We’ll see about all that.

I tend to find the gyrations of the stock market far more interesting. Perhaps it is the access to tax favored dividends that simply seem-to me at least-a preferred source of income when compared to savings accounts and bonds. This week I checked in with Philip Orlando, Senior Vice President and Equity Market Strategist with Federated Hermes for his current take on the stock market. In his weekly commentary he alludes to the surprisingly positive reaction by stocks recently. Though we are still in negative territory for the year (as measured by the Standard and Poor index) last week it soared more than 6%- in that week alone! It was the market’s best weekly performance since November of 2020. Though they do warn that a rally of that magnitude could be a “head fake” and expect this period of volatility to continue. They continue to advise a defensive investment strategy. One that leans toward a concentration in relatively cheaper, less risky value stocks that enjoy higher dividend yield support. I agree.

Just for good measure I also checked in with Nuveen Investments via their weekly commentary to ensure they maintain an air of optimism regarding the stock market this year. It is very easy to be unnerved by the current volatility and global unrest that constantly dominate the news cycle. However, Saira Malik, Chief Investment Officer and head of the team that oversees their global outlook maintains that U.S. economic data still supports healthy (albeit modestly slower) growth. They point out the all important ISM manufacturing index remains firmly in expansion territory. At its current level, the index is consistent with an economic (Gross Domestic Product) growth of about 4.1%. That’s plenty to sustain an optimistic view over the course of this year as it relates to a well managed investment account. On we trudge.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal.

RFG Advisory and its Investment Advisor Representatives do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. Please consult your own tax, legal, and accounting professional for guidance on such matters.

Visit us at www.planinvestinspire.com. Tommy Williams is a CERTIFIED FINANCIAL PLANNER™ Professional with Williams Financial Advisors, LLC. Securities offered by Registered Representatives through Private Client Services, member FINRA/SIPC. Advisory products and services offered by Investment Advisory Representatives through RFG Advisory, a Registered Investment Advisor. RFG Advisory, Williams Financial Advisors, LLC and Private Client Services are unaffiliated entities. Branch office is located at 6425 Youree Drive, Suite 180, Shreveport, LA 71105.

This article originally appeared on Shreveport Times: Inflation, interest rates and income