Stocks dropped sharply last week due to unexpected hawkish comments from the Fed. We have been writing since late last year about our belief stocks are priced to perfection, and that any perceived negative catalyst could cause a decline in prices. Therefore, it is not a surprise the Fed’s comments last week caused a spike in volatility.
We do not view the Fed’s comments as a long-term negative because we believe they are in response to higher-than-expected economic growth and high inflation.
We believe reacting due to the latest news headline is not a sound strategy for making investment decisions.
Like many of you, we are trying to figure out what the second half of 2021 has in store, and we will address this further in our second quarter commentary next month.
Despite all the talk about inflation, we have seen some leveling off in recent weeks. For example, commodity prices have been falling as Chinese leaders have taken an active role to tamper inflationary pressure. Some other examples are as follows:
- Mannheim used car auction prices showing a slight decline in auto prices 1
- Lumber prices are down over 45% from the 2021 peak 2
- Grain prices are falling from their recent peak 3
We are continuing to watch inflation closely and will keep you updated on our thoughts on inflation and the markets as this volatility continues.
Thanks, and enjoy the rest of your day.
Dennis P. Barba, Jr., Ph.D
President & Managing Partner
Important Disclosures: Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. Past performance is no guarantee of future results. Wells Fargo Advisors Financial Network is not a tax or legal advisor. Be sure to consult with your own tax and legal advisors before taking any action that may have tax or legal consequences. CAR-0621-02883