Inflation and Supply Delays

We want to give our viewers an update on inflation and the supply delays that we’re seeing impact what the Fed is doing, as well as how supply constraints are impacting corporate earnings. You can see in the chart shown in the video for this episode that we are still seeing a higher inflation increase this year and it’s an issue that the market will have to deal with probably for some time, based on the supply constraints that continue to get worse. Another chart shown in the video shows the percent of businesses that reported supply delays last week. Over 40% of businesses are reporting delays with significant delays in the construction, food, and wholesale trade industries. This matters a lot. There is a chart shown in the video that shows current inventory to sales in the auto industry. These are major companies that employ a lot of people that are seeing a significant drop in sales due to supply shortages. When will all supply shortages get better? We’re following things closely, but based on the fact that over 60 container ships are currently waiting to dock in southern California, short-term solutions are scarce. Without the dependence on fully functioning factories, employee docks, affordable container ships, and available truckers, the empty shelves and inflation will most likely continue into the foreseeable future and especially as we head into the busy holiday spending season. Basically, we all need to start shopping now for the holidays.

Selective Inflation

Last week, a major retail shoe manufacturer watched their stock drop 6.2% because of supply chain issues. Most of their product is made in Vietnam which, for 10 weeks this summer, was shut down and the rippling effect of that is now impacting this retail shoe manufacturer. Another one being impacted is a major retail store chain. They weren’t hit as hard on their individual stock, but they’re saying that they’re seeing a 3.5%-4.5% inflation rate in products like paper goods, water, and other types of consumer goods that people use daily, because of the supply chain issues. This may be selective inflation that we’re going to see based on what products can get here and which ones cannot.

Technical Analysis

Last week, we saw the volatility in the market continue as the S&P 500 closed on Friday at a price of 4,455. That creates a new resistance level of 4,485 and a new support level of 4,425. The 20-day moving average, which consists of the last three weeks’ worth of trading, is currently sitting at a price of 4,472. Despite the volatility, we’re still seeing the 20-day moving average sitting close to the resistance level. It is going to be important to look at the consumer moving forward as we go into the last three months of the year. Can they hold up and will supply chain disruptions have an effect on them? There is no doubt there’s a lot of cash on the sidelines. If corporate earnings continue to be strong and if that extra cash that’s out there keeps coming into the market, as well as other positive news comes in, we could very well see a strong fourth quarter for 2021. This is all dependent on supply chains, so we don’t have any economic surprises in that area, but there’s a lot still going on. Will the Fed Chairman be reappointed? There are tax discussions still coming out of Congress that could have emotional input, plus more. It’s not going to be a dull fourth quarter, but we’re going to keep everybody updated as this continues to evolve.

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Adam Vansant, AIF®, BFA
Vice President
Wealth Consultant
Email Adam Vansant here

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

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