Stocks Are Going...? The Difference Between Main Street and Wall Street? Does Inflation Finally Go Up?

We just went through the quickest stock market drop since the great depression in late February into mid-March. Then, we saw one of the quickest rebounds back with the S&P 500 peaking on April 29th from the lows. The last couple weeks the markets are basically flat. The question is where does the stock market go now?

A few key points:

1. At the bottom of the stock market, the expectation was a drop of 80% of corporate profits. Today, we are sitting around a 40% drop in corporate profits. The expectations from many economists I speak to is that we will see about a 25% drop in corporate profits (barring another shut down of the economy later this year).
2. Over 50% of the U.S. work force participates in retirement plans such as a 401K. This money is systematically buying into this stock market. 
3. When this shut down started, many small mom and pop businesses have and will continue to go out of business even when all of the reopening’s happen. Many of the large companies in the S&P 500 have the capital, resources, and structure to reopen without skipping a beat. With all of these people not able to eat, shop, and do commerce with the small mom and pop businesses, will the large companies scoop up wallet share?  I would think so! This will help corporate profits.

Another topic is, what about inflation and the demand for the dollar. Printing money and just constantly issuing debt will have long term inflation in my opinion. This could not happen for a while and in my humble opinion, it won’t happen right now. But sooner or later, the chickens will come home to roost.   It didn’t work in the Weimer Republic or in England when the pound was the worlds default currency.  In 2008, it didn’t happen because all the quantitative easing went into excess reserves. But I truly feel we are going to see inflation creep its head out sooner or later. So, how can you prepare? Call me out dated or not tuned in, but at this very second, I am still not a believer in crypto currency and haven’t been since I heard of bitcoin years ago. These are some options to consider:

1. Buy Gold or other commodities.
2. Buy Real Estate.
3. Buy Stocks.
4. Buy higher yielding Bonds and TIPS (Treasury Inflation Protected Securities).

To summarize, we don’t have a crystal ball and I could see stocks down 15% in a year or up 15% in a year. We also could see no inflation for the next 10 years. However, I think diversification and active management can make sure your risk will be mitigated. I look forward to our next meeting and discussing these issues with you in person. 

Evan J. Mayer CFP? CRPC? CWS?

Founder & CEO, The Mayer Group

The Mayer Group is not a registered broker/dealer and is independent of Raymond James Financial Services.

Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc.

Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Treasury Inflation Protection Securities, or TIPS, adjust the invested principal base by the CPI-U at a semiannual rate. Rate of inflation is based on the CPI-U, which has a three-month lag. High-yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer's credit quality. Price changes may occur due to changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of a portfolio.

Bitcoin and other cryptocurrency issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James client accounts.

Any opinions are those of The Mayer Group and not necessarily those of RJFS or Raymond James. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Diversification and asset allocation do not ensure a profit or protect against a loss. This is not a recommendation to purchase or sell the stocks of the companies pictured/mentioned. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns