The Week in Review: October 4, 2021
Investors Fret Over Supply Chain Crisis
Last month’s modest setback for stocks can’t be pinned on just one issue. Instead, a confluence of events led to weakness, including a slowdown in economic growth and rising worries about inflation.
The problem with inflation has been well documented. In part, it’s tied to the reopening of the economy. Yet it goes beyond that.
First, manufacturers are grappling with significant disruptions in the global supply chain brought on by the ongoing pandemic. This is especially true for automakers, as they simply cannot secure the semiconductors needed for today’s high-tech cars.
Last week, CNBC reported, “U.S. auto sales forecast to plummet in third quarter as chip shortage plagues industry.”
But there are two parts to the equation: the supply of goods and the demand for goods.
U.S. monetary and fiscal policy has played a big role in limiting the damage from the lockdowns.
In some respects, it’s been too successful. Dump a massive amount of cash into the economy and it will get spent. But businesses have not equally benefited from Congress’ generosity.
Spending on durable goods, which includes autos and home appliances (items designed to last three or more years) has soared (Fig. 1), and outlays on nondurables have been quite robust.
Even in normal times, businesses would strain to meet that kind of demand. Supply chain woes, coupled with labor shortages, have only exacerbated the situation.
Yet demand for services has been much more muted, and price hikes have been modest.
There’s little in the short term to suggest things will get better. Globally, they may get worse.
An energy crisis is brewing in Europe, as power costs hit a record high in Germany and France (Bloomberg). Natural gas prices hit a record in Asia and are running about six times what we see at home (Reuters). Still, the price of natural gas in the U.S. has doubled over the last year.
While the U.S. isn’t being hit directly, these are costs that could get added to manufactured goods. Few expect the economy to contract, and recently, new U.S. COVID cases have fallen (CDC data), which is encouraging. But things have gotten a little bumpy, and this week’s review offers some insights into what’s been happening behind the scenes.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
1. As of Sunday, Sept. 19, there were 73 ships waiting to unload cargo at the ports of Los Angeles and Long Beach. —The Wall Street Journal, September 21, 2021
2. Facebook paid $23.4 million for Mark Zuckerberg’s security detail last year. Google paid out $5.4 million for security for its CEO, Sundar Pichia, while Amazon paid $1.6 million for Jeff Bezos. Apple only paid $470,000 for Tim Cook. —Engadget, July 21, 2021
This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.