Inflationary Pressures Affect Equities – Equity Market Update

Inflation pressures have been a minimal hindrance on the equity markets thus far, as many companies are passing along higher production and material costs to customers while still maintaining margins.

International equity markets, including developed and emerging, are recapturing momentum lost during the pandemic, elevating returns comparable to those in the U.S. markets.

Sectors leading the S&P 500 Index in May include energy, financials, industrials, and materials, representative of economic expansion as deemed by economists and analysts. Expansion in these sectors tend to influence other sectors as growth dynamics transition from industry to industry. (Sources: S&P, Bloomberg)

Fed Tapering is Concerning Bond Markets – Fixed Income Market

Comments by Federal Reserve members are hinting that the Fed is considering pulling back on Treasury and mortgage bond purchases, which is known as tapering. The last time the Fed slowed stimulus or pulled back on quantitative easing (QE), was in 2013, resulting in a so-called “taper tantrum.”

A curtailment in stimulus efforts by the Fed is expected to eventually result in rising bond yields, higher mortgage rates and increased loan expenses for consumers. Historically, rising interest rates have been the Fed’s most useful tool in mitigating inflationary pressures, which has recently become a focal point for the Fed. (Sources: Federal Reserve, U.S. Treasury)

Travel Picks Up – Travel & Leisure

The proliferation of vaccinations, along with pent up demand for travel has driven Americans to finally leave home and head out. The Transportation Security Administration (TSA) essentially tracks and counts every traveler passing through a TSA security checkpoint in every airport nationwide. The compiled data over the past year shows a dramatic downturn in travel in May 2020 with just over 176,000 daily travelers versus 1,500,000 daily travelers in May 2021.

Airlines, car rental agencies, restaurants, and hotels tend to benefit the most with an uptick in travel, which has been nearly dormant for the past year. The increase in travel also creates new jobs for the hospitality and travel industries, which were severely hit during the height of the pandemic.

The U.S. Energy Information Administration (EIA) is expecting U.S. highway travel to rise by 15% this summer, from last summer.The EIA also forecasts that consumers will increase their spending on motor gasoline by about 31% this summer due to increased travel as the pandemic subsides.

Source: https://www.tsa.gov/coronavirus/passenger-throughput, EIA

How Inflation Creeps Up On Consumers – Consumer Behavior

Over the past year, global economies went from a slow expansion at the beginning of 2020, to an abrupt halt with the onset of the pandemic in March 2020. Supply chain bottlenecks have become rampant as increasing demand has evolved from a slowly recovering global economy. Historically, rising producer prices have been a predecessor to consumer inflation when manufacturers and distributors pass along the higher cost of materials and labor to consumers in the form of higher retail prices. A lack of critical components for everything from automobiles to cellular phones brought about production shortages that led to decreases in supply simultaneously as demand fell across the globe. As demand has begun to rekindle, shuttered factories and supply chains have not been able to keep up with rising demand, resulting in order backlogs and higher prices. (Source: Bureau of Economic Analysis)

USPS Struggling – Government Agency Overview

The United States Postal Service (USPS) remains an integral part of the economy and the country’s infrastructure even as the popularity of electronic payments and digital transactions have dramatically reduced the volume of mail processed by the USPS.

Of the more than 129 billion pieces of mail delivered in 2020, the most widely used service of the USPS is its first class mail service. As the volume of all mail has been dwindling, so has first class mail, falling from over 103 billion pieces in 2000 to just over 52 billion pieces in 2020, roughly a 50% drop in twenty years. There have been numerous rate increases over the years, with the most recent rate increase up to 55 cents for a 1 ounce letter in January 2019.

Source: USPS