Weekly Reading Recommendations
Treasury Unveils New I Bond Rate of 4.28% - But Your Bond May Pay Much Less (Investopedia.com)
Pay Off Your Mortgage Early or Invest? (Morningstar)
A Necessary Evil in the Stock Market (Ben Carlson)
Is Inflation Reaccelerating?
Is Inflation Gearing Up Again? Recent data has sparked a debate on whether inflation is picking up pace. With inflationary data points rising unexpectedly in the first quarter of 2024, the question looms large.
This week's highlight article, from J.P. Morgan, provides a compelling argument against the fear of inflation continuing on a problematic trend higher. They point to several key indicators that suggest a significant reacceleration of inflation is unlikely, including:
Easing Wage Pressures due to Cooling Labor Market Dynamics (reinforced by April's labor market report just released this morning as discussed in this article by Reuters.)
Increased Price Sensitivity among consumers as the exuberant spending spree from pent-up demand following COVID is behind us.
Long-term Inflation Expectations Remain Well Anchored
Shelter Inflation Should Continue it's Downward Trend (as we have discussed in prior What We're Readings, there is a lag between how shelter inflation is reported in official Inflation data relative to real-time market measures of rent inflation).
Note - We highly recommend taking a glimpse at the chart in the article highlighting this dynamic with Shelter Inflation.
The article concludes that while there are bumps on the road to a 2% inflation rate, a key theme Legacy has reiterated will occur on this "last mile," a significant reacceleration is unlikely, and disinflation is expected to resume in the coming months.
Click Here to Read: Is Inflation Reaccelerating? (JP Morgan)
The bottom line: It is unlikely inflation can sustain a reacceleration and much more probable that disinflation will resume over the course of 2024. While the Fed’s cutting cycle may be delayed, the risk of “stagflation”, where rising inflation is paired with weak growth, does not seem significant at this time.
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Charts that matter
Volatility…All Part of Investing in the Stock Market
Expanding upon the article above titled "A Necessary Evil in the Stock Market," this week's chart provides a look at what investors must tolerate in order to receive the premium returns delivered by the stock market over the long term. While it is easy to get caught up in the day-to-day movements of the stock market, focusing on the long-term is paramount as the probability of achieving a positive return increases significantly.
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