Mid-Year Market Assessment

It’s been a tough year but in many ways it has been necessary, and good. Obviously, the news focuses continually on the challenges facing the economy. I think the four biggest are inflation, the labor shortage, supply chain issues and higher interest rates.

Our main economic issue today is inflation and that is significantly driven by energy prices that infiltrate every sector and every family. The Ukraine war plays a part, but it would have been minimized had the U.S. stayed on its track of energy independence. Before people start writing me ugly letters let me clarify. It doesn’t matter to me where our energy comes from. It would be wonderful to one day get it all from the sun. But we must have energy today because it is the driving force of an economy and without it a nation cannot survive. The political parties need to find acceptable solutions that provide the energy we need today and tomorrow. Doing so will require compromises and reasonable attitudes from all sides.

Labor issues abound. Businesses are struggling to hire the people they need. But a labor shortage is not all bad. It means businesses have more capacity. The labor market is growing at roughly 400,000 per month and currently there are over 11 million jobs available. This means our economy can keep adding jobs at that rate well into the future. New jobs mean more production and more “real” money for the economy. Though inconvenient sometimes, I would gladly take a labor shortage over businesses laying people off. Supply chain issues are largely tied to the labor shortage, and both should improve together. Investors might view labor shortages as a sign that businesses are growing.

Rising interest rates are upsetting, but necessary. Money has been too cheap for many years and this particular Certified Financial Planner® professional thinks we needed a good monetary shaking up. A decade of cheap money has allowed consumers and businesses to go on a national spending spree. Add to that the infusion of massive amounts of stimulus money and our nation as a whole has been borrowing and printing and spending money at a level that is simply not sustainable. The money supply in the past two years has grown at six times its normal rate, meaning it will take several years for all that cash to be properly absorbed into the economy. As much as we don’t like it, we needed a little cooling off.

We hear that the economy may be falling into recession. I think of it more as falling back to earth where it belongs. It has been artificially supported by a lot of hot air (cheap or free money) and it was time to stop that. Today the price to earnings ratio of the S&P 500 companies stands at about 17 to 1 whereas just 18 months ago that ratio stood at 35 to 1. With earnings still growing I see this as a much healthier starting point for the next growth phase.

Dan Wyson, CFP® is author of “The Gold Egg," and “21 Financial Myths” and owner of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 - 435-986-9525 – Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor