Well, you know, it’s to be expected with the rise in inflation everywhere right now, even though we think it is transitory. It will definitely force the Fed eventually to raise interest rates, but I think they can expect that they could live with a lot more inflation before they do that. We don’t expect rates to go up for another year or so. As long as the market knows it’s coming, they’ll get prepared for it. We do need a bit of inflation. They’ve been dying to have some inflation for the last five years. So I think they can live with 3% inflation without doing much to the market.
Can the consumer live with that, though? Because we heard from Morgan Stanley saying that they’re concerned that the plunge in consumer sentiment will eventually catch up with markets, especially if it means less spending, and we’re going to see earnings revised downwards. Is that a real risk?
I don’t think so, just because we have the highest savings rate in the history of the United States. There’s an excess of savings. The reason there’s inflation is that there’s money in the market. It’s tough to have a bad market when there’s so much cash and the infusion of dollars in the economy. People are buying. I know real estate is up, things are up, and people are buying cars. Even with prices going up, they can live with that. A lot of them are going more into electric cars to offset that. So it’s something that we’ve needed for a long time. We need to have some inflation. Now, granted, it’s got up a bit more, and I think wage inflation will certainly be here for a bit longer, but that’s good for the economy. People are getting more money.
With rising yields, we are seeing banks rising. They are one of the biggest gainers. In fact, it was the best year versus the S&P 500 since 2000. Is there room for more gains? I mean, we are getting those earnings results this week, right?
They make so much money on the spread of interest rates and financials; we do think there’s more. It is one of our convictions to add more to financials. There’s a lot more out there because we just don’t know; they are making money without even higher interest rates. Now with high interest rates, they are going to make a lot more money. It’s a very good place to be, and they can hike their dividends as well.
You know, I look at that as well. They should have gone up, but they’re down today. Even the oil prices went up. Long-term, I think more and more cars are getting away from using gas and into the whole electric mode. So if you look long-term, we believe oil prices are not going to keep going up. We do think OPEC will probably increase their output here pretty soon. So if you look at the long range, we see a downward trend. It’s hard to buy it today for the very short term.
Laila Pence, great to have you on. The president of Pence Wealth Management.
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