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Market Commentary 09-10-2021

Kris Venezia, Market Analyst

One of the things we like to do is review and pay attention to company earnings. Obviously, we keep tabs on revenue growth and profits but an important part of the process is we get commentary from businesses. Executives take questions from analysts on various topics impacting their company.

In this latest earnings period, one item I have kept an eye on is the supply chain. We know there are issues with global supply chains because of Covid and how different officials in different region have reacted to the virus.

There are a wide variety of items affected right now with supply chains. One I care about involves golf. Callaway had announced that restrictions in Vietnam would impact golf clubs. They came out this week and said they are finding production outside of Vietnam and are calling this disruption "short term," but we'll see.

For people who do not care about golf, different foods, cars, furniture and clothing are all facing various supply disruptions. Coffee, for example, is harvested in Brazil and outbreaks and bad weather have impacted those prices. Ford, Toyota and GM are among those who are slowing down production because they cannot get enough chips for their new vehicles. VW, BMW and Mercedes executives have all warned these disruptions could last into 2023. Clothing and furniture companies are dealing with several difficulties in their supply chain. Production of items in parts of Asia, like Vietnam, has been strained. It's tough getting cargo ships unloaded quickly at docks in California with shortages of labor and a backlog of ships. There's a shortage of labor in the trucking industry which strains that aspect of transportation. You put all that together and it puts pressure on Costco, GAP, Wal-Mart, Dollar General, Nordstrom and other retailers and clothing manufacturers.

The most frustrating part of all this is that we do not have a idea of when the situation will improve. It is unclear when the labor market will improve to meet demand in areas like trucking and dock workers. It's hard to gauge what other countries and officials will do to combat the spread of COVID.

The supply chain puts pressure on companies themselves by hurting profit margins. But it also hits us, who buy things, because companies are put in a position to pass on some of those higher costs to the consumers.

I will make a point that given what we are seeing, if you are planning to do any holiday shopping for the end of the year, you are going to want to get that done early. Supply chains are on track to be extremely strained later this year. If your kid wants a Turboman for Christmas, you will want to get that sooner rather than later. That's a Jingle All The Way joke. It's a 90's classic.

Daryl Eckman, President

We are starting to get phone calls. We got a number of phone calls about what we think about the Biden administration.

There will always be some sort of political risk or discontent with the president. If it's a Democrat or Republican, there will be frustration with some people over who the president is.

Our job is to keep our eyes on what is important and avoid giving into emotional bias that can come up with politics.

We have been making some adjustments to the portfolios because there is a Democrat in the White House and Democrats have the majority in Congress. Democrats have more of a sway in the budget process and right now a multi-trillion-dollar budget is being negotiated.

We cannot get emotional about politics and have it influence investment decisions poorly. If you are frustrated with the political environment, give us a call. We can walk through and discuss some of the historical factors with the stock market and politics.

We have also spoken about trends with different presidents and different political parties in power in the past. You can read through that information by clicking here.

Clint Carpenter, Director of Operations

I’d like to touch on some of the more negative economic data we’ve been seeing lately, mostly pertaining to jobs. Last week we had a pretty big miss - economists had predicted that 750k jobs would be created in August, and we ended up with only 235k. If we really lean into this and analyze it, we can pretty easily blame it on the Delta variant - because we can see the weakness in restaurants and bars, which are a perfect proxy for how the overall labor market is faring. The restaurant industry had been powering the economic recovery and now it’s actually shedding jobs. Pronounced declines in the number of restaurant reservations, as Kris has touched on before, show us that this is not just a worker shortage problem, it’s a demand problem.

There’s some silver lining in this, however. If we think service sector jobs are suffering because consumer demand is down, it means this isn’t necessarily a trailing off of the economy as a whole, but just this one consumer-driven industry. On the brighter side, the Bureau of Labor Statistics has released other reports recently that show us the so-called “job-finding” rate has increased for the second month in a row, the jobs numbers from both June and July were recently revised up to the tune of 130k jobs, overall unemployment declined from 5.4% down to 5.2% and UNDERemployment dropped further, from 9.2% to 8.8%. Wages also rose in August, and that wage growth was skewed toward the lower paying sectors - a big positive for income distribution and consumer spending going forward.

So, I know we’re all sick of talking about COVID and the Delta variant, but it’s having clear impacts on our economic data and we have to sort through it all and consider it all when we we’re analyzing how the economy is performing and whether it’s systemically in trouble or just situationally set back for the time being. The next few jobs reports will be instrumental in the market’s opinion - as the impact of back-to-school and the end of federal unemployment insurance take their effect on employment.


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