Last Friday’s weak jobs number gave a false sense of security to those who were worried about rising inflation. But, this week, the numbers tell a different story. Wall Street has come to realize that weak jobs numbers are not due to people not finding work, it is because they are not looking for work. With the stimulus and unemployment benefits continuing for those who lost their jobs a year ago, the inertia to get back to work is distorting the jobs numbers.

Of course, the relationship between growth in the economy and growth in stock returns is not at all straightforward. In the global economic boom likely to come, there would be two fundamental opposing forces working against one other in the markets: growing profits of companies and rising inflationary pressures bringing increasing interest rates.

And there is rotation of cyclical stocks from growth to value still winding its way through the stock market. The recent weakness in stocks serves as a good reminder for investors that May is historically a weak month for equity returns and patience is of paramount importance.

Future Wealth’s View

There is a famous saying on Wall Street – “Sell in May and Go Away”. While one can debate if this is just a catchy phrase or there are some fundamentals behind it, the overwhelming concern now among investors is inflation. In our article, a month ago, we had cautioned our readers that it would be a grave mistake to completely trust the Fed which appears to be dismissing the rising inflationary indicators as temporary. The link to the article is here –

The facts on the ground continue to support rising inflation – Copper, lumber, housing, energy, used cars and bitcoin (before Elon Musk’s comments this week), all have one thing in common – rising prices. While we, at Future Wealth, are no economists, waiting for the data to confirm the inflationary impact before raising interest rates may be too late. And the Fed knows this.

But, raising interest rates is not a bad thing for investors. Equities have performed well before in higher interest rate environments and will likely do so in the future. The challenge is to make timely adjustments in the portfolio to keep with the changing times. And that is what we do at Future Wealth LLC for our clients.