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06.3.2022 by David M. Smith

Reports Indicate a Growing Economy but Summer Inflation Reports Will be the Big Story

Last week was a very good week for the stock market – the first in almost two months. This week is more choppy. But the choppiness is no surprise as there is still a lot of uncertainty about inflation and where Fed policy goes after summer. Economic reports are showing a growing economy, such as the Manufacturing Purchasing Managers Index (PMI) for May. The PMI reading came in at 56.1. Any reading above 50 indicates expansion and the May reading indicates solid growth. Yahoo Finance And Goldman Sachs came out this week and said the risk of a recession in 2022 was low. They are projecting second quarter GDP to come in at 2.8%. Yahoo Finance

There is still much uncertainty and it all revolves around inflation. There are signs some of the frothiness in the economy is coming down, such as in home sales which was cited in last week’s blog. RSWA Blog But there are no signs that broad based inflation is coming down, though April’s reports indicate prices may have leveled off – albeit at a high rate. Axios

The rhetoric out of the Federal Reserve is combating inflation is the number one priority. Investors expect the Federal Reserve to raise short-term rates by half a percent at both the June and July meetings. Jerome Powell, the Fed Chair, has clearly articulated this. The current short-term rate is 0.75% - 1.00%, so by the end of July, that should be 1.75% - 2.00%. But while many of the other Federal Reserve policymakers support the June and July moves what comes after that is up for debate. Some Fed policy makers spoke about pausing rates after July to let them work their way through the markets. Reuters   At the same time, other policymakers are saying they want to continue to aggressively raise rates through the end of the year. US News

The inflation reports coming out during the summer months will be critical in how the Federal Reserve moves forward with policy. But investors should expect choppy markets until inflation readings show signs of prices coming down giving the Federal Reserve room to ease up on aggressive restrictive monetary policy.

Due to Remote Work, Cities May Have to Reinvent Themselves: Cities that have the longest commutes are having a tough time bringing workers back as office occupancy is still way down in large urban areas. In a Gallup survey last summer, 52% of those who want to work remotely cited avoiding the commuting time as the top reason for not going back to the office. Cities with longer commutes are struggling more than urban areas where people live closer to work. Urban business districts are becoming ghost towns with many businesses that cater to office workers going out of business. If this trend continues, cities may have to reconfigure local infrastructure to support easier commuting such as more roads or public transportation. Another option is for cities to create more living spaces in cities so workers can walk or have short commutes to work. Either way, if the trend continues, cities may have to reinvent themselves. WSJ

Financial Planning Corner:

Cash For Emergencies – And Comfort: Part of our financial planning process is determining how much clients should put aside in cash for unexpected emergencies. The amount is dependent on each client’s situation. If a client has high job security and has easy access to funds the amount could be as little as a few months of income. For business owners or individuals whose income varies widely or could be low for an extended period of time, the emergency cash could be as much as a couple of years of income. Many clients also have a personal preference for holding a certain amount of cash because the security knowing it is there makes them feel better. If you have questions about how much cash you should put aside, please contact your advisor. And as short-term rates move up, the yields on savings and money market accounts may finally start yielding some dividends. Here are some rates to check out: – High-yield Savings Accounts

Thank You! We received a lot of nice comments regarding the RSWA Ultimate Retirement Planning Guide mentioned in the newsletter two weeks ago. Thank you for the kind feedback and for many of you who shared the guide with friends. If there are any other financial planning topics you would like us to write about, please let us know!

Quick Hits for the Start of Summer:

  • Summer movies to get you excited to go to theaters again: Wash Post Polygon
  • And speaking of movies, Tom Cruise may make $100M from Top Gun: Maverick: Forbes
  • Summer recommendations for food, books, sports, and travel: NYT
  • How to choose a non-toxic sunscreen: Very Well Health
  • Best practices for avoiding tick bites and Lyme’s disease for people and pets: CDC
  • Tips to improve your golf game: GolfSwingExperts

Discovering Lost Cities with LIDAR Technology: Lost cities are being found in the Amazon using remote sensing technology called LIDAR that can see through the canopy to reveal stone structures. Many structures and ancient cities have been found but much of the Amazon has yet to be mapped. This is leading scientists to believe the ancient Amazon was much more heavily populated that previously thought. Smithsonian Magazine LIDAR – Wikipedia

Farmers Markets: Summertime is a wonderful time to go to farmers markets to enjoy locally grown produce and products and they have been gaining in popularity over the last decade. They are also a terrific way to meet the farmers and support the local community. Time to grab some corn for the summer BBQ! National Farmers Directory Farmers Market Places  

Book: Originals: How Non-Conformists Move the World: It has been out a number of years, but I finally got around to reading the book “Originals” by Adam Grant. It describes how creative ideas and people who implement them work. I always thought non-conformists of innovative ideas just did their own thing with little worries about what others thought. But research shows that many leaders that championed new ideas exhibit deep doubt and uncertainty. They also have concerns about what others think and failing. But despite all that, they move forward anyway. Some of Grant’s thoughts about championing a new idea are counter-intuitive, such as emphasizing the weak points of an idea first which helps the audience absorb the positive points later. An interesting read. Amazon Adam Grant – Originals Ted Talk

Word of the week: Vuja de: It is the opposite of déjà vu. It happens when you look at something you have seen many times before and all of a sudden you see it with fresh eyes and perspective. DIA Brands quoting Adam Grant

Enjoy the weekend. Thank you for reading RSWA Financial Advisor Insights! We welcome feedback and please forward this to a friend! Be well, take care, and stay safe!


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