While many venues of major entertainment are closed from the public for their purposes many investors think that the public will jump right in when the major threat of the pandemic is over. In fact these investors are thinking there will be a surge in consumer spending to many industries that have been hit hardest by the pandemic.
A large concern going forward is a sustained spending clip that could cause prices for goods and services to rise substantially which would hurt asset values and increase the cost of living. Matt Stucky, an equity portfolio manager for Northwestern Mutual Wealth Management says that, “I don’t think inflation is dead. The desire by key policy makers is to have it, and it’s the strongest it’s ever been. You will see rising inflation.”
More investors and analysts on Wall Street have been focusing on the potential for the new Biden Administration $1.9 trillion stimulus package that will pinpoint relief to households, could cause inflation to grow at an unsustainable rate. Oxford Economics released a statement warning that they expect the “longest inflation stretch above 2% since before the financial crisis, but it’s unlikely to sustainably breach 3%.” That much inflation could cause increased costs, lower profits, and cut stock values.
Alternatively, it’s possible that some asset groups are already inflated by the Federal Reserve’s policy of low rates and easy credit and could be due for cooling down. Stocks in the United States in the three major indexes, closed Friday at record highs. Meanwhile companies that are laden by debt are now able to borrow in speculative-grade corporate “junk” bonds at rates as low as 4%.
Meanwhile, housing prices in the United States are also rising rapidly while the pandemic has gone on, even though the United States is still missing about nine million jobs from the pre-pandemic days. Chairman of the Federal Reserve, Jerome Powell, said that he does not expect an outbreak of inflation but he stressed that the central bank is focused on fixing lost jobs during the pandemic while the UNited States looks to make headway into the vaccination program into July.
Secretary of the Treasury Janet Yellen reiterated that the time for fiscal stimulus is now. Meanwhile co-head of investments at Thornburg Investment Management, Jeff Klingelhofer, says that,“Broadly, the guide is, does it cost me more to live a year from now than a year prior.”