How many times did the words “inflation” or “supply chain” come up at the Thanksgiving table? I’ll bet it was at least once. It’s hard not to talk about anything else right now, especially in light of magazine covers like this one.
In such a polarized political environment it’s nice we can all agree on something for once – we all hate higher prices. The consumer price index went up 6.2% from last October, the biggest increase in 30 years.
It’s too bad because there are so many good things happening in the economy right now. Just look at some of the recent charts from Ben Carlson:
US GDP, the S&P 500, and housing prices are all at all-time highs. It’s also arguably one of the best times in memory to be looking for a job or start a business. So why does it feel like people are so frustrated with the economy? The University of Michigan Consumer Sentiment Index fell to 66.8 in November, the lowest reading since 2011. Perhaps it’s as simple as that families can’t use higher GDP or home values to pay for higher food, rent, and gas prices. Disposable income, which spiked during the pandemic, has come way down and continues to decrease.
Elevated inflation has started to make its way into the pockets of the stock and bond markets as well. Back in March, I wrote about how higher interest rates and inflation had the potential to take down high-flying tech stocks, especially some of the “reopening” names that benefited from the COVID lock downs like Zoom, Peloton, and Teledoc. Look at the carnage in those stocks now.
Incredibly, index fund investors probably haven’t noticed this whatsoever. As of this writing, the S&P 500 was up about 22% on the year. We’ll have to keep our eyes on inflation and if the selloff in more speculative stocks moves into the broader market. Stay tuned.