The highest inflation reading in over 30 years gave the markets a modest pause last week. The US Consumer Price Index (CPI) reported a 6.2% yearly increase. Also hitting a 26-year high, was the Producer Price Index (PPI), how much company costs have increased, up a WOW 13.5%.
With all of the news outlets crying about inflation, the markets only yawned. For the week, the Dow Jones dropped (.56%), the S&P 500 (.27%), the Nasdaq (.68%) and Russell 2000 (1.00%).
Foreign stocks followed suit, losing (.34%), however Emerging Market stocks rose 1.71%.
Bond yields did rise, however are still sitting in the current range with the 10 Year US Treasury yield @ 1.58%.
Interest Rates 2021
The 2-year US Treasury had a yield on 12/31/2020 of .12%. Last Friday, the yield was .52%.
The 10-year US Treasury had a yield on 12/31/2020 of .91%. Last Friday, the yield was 1.58%.
Why the much larger increase for the 2-Year? Many are now believing that inflation is in the process of peaking. The belief is that next year, overall demand will subside with less stimulus floating into wallets. If our supply chain issues are in the process of being repaired, it is reasonable to believe the current pace of inflation will moderate over time.
If this was not the belief, I think rates on our longer dated bonds (10 to 30 years) would be rising much faster and higher.
The recent report from the S&P/Case-Shiller National Home Index stated home prices have gained 19.8% over the last year, the highest gain in 15 years.
I’ve talked to many clients about their thoughts on housing prices. Some feel we’ll have a “housing correction,” while others believe prices may moderate only slightly, followed by a more normal rate of increase going forward.
The pace of permits, breaking ground, etc. have in fact slowed from their peak earlier this year, however the demand still remains very strong.
My thoughts are, assuming no unknown shocks, real estate price increases should moderate, however I don’t see an overall reset in pricing. If we do have a strong rise in interest rates, that will certainly change the picture.
Preliminary 2022 Tax Information
Each year during November, we offer our “Preliminary” 2022 Key Financial Data. You will see tax brackets, deductions, and a lot of beneficial information about 2022. Excellent source to assist with planning!
I am a bit hesitant to publish this, because of the upcoming $1.85 Trillion spending bill. My suggestion is to print this for your records. If the new spending bill becomes law, we’ll certainly publish an update, reflecting all of the changes. Comparing the current 2022 tax projections with whatever new may be coming our way should be interesting!