Not quite, but we are getting closer. Last year when we were mired in bad news caused by a bruising election cycle and a global economy crushed by the fear and devastation of the Covid-19 pandemic, we encouraged your patience as we shared our optimism about the potential for a robust recovery. Spring is showing us there are green shoots starting to emerge, in our winter weary landscapes as well as the economy. U.S. hiring surged in the first quarter. The recovery is being driven by a rapid distribution of the Covid-19 vaccine. In the U.S. we are now capable of vaccinating over 2.5 million people a day, getting ever closer to our community immunity goals. As more people are vaccinated against Covid-19, businesses are increasing capacity, and Americans are shopping, dining out and traveling. Fear is subsiding and consumers flush with cash after receiving federal stimulus checks are returning to pre-pandemic spending patterns.
A healthy economy with higher demand for goods and services and lower unemployment, can cause inflation. We have not experienced inflation much in recent times but some of us of a certain age can remember when it was a harsh reality. There are areas of the economy where price increases are showing up. Case in point, shortly after we moved into our new office, we experienced a hailstorm that damaged our roof enough to warrant its replacement. When the roofer recently was able to get to the job, he informed us that the metal that had been used for our roof just 2 years ago, had doubled in price. When inflation occurs, the Federal Reserve will typically begin to raise interest rates, causing the economy to slow. Rate hikes cause anxiety in the markets and we have witnessed some recent volatility due to that fear. Rising rates would mean companies that have been able to borrow money at rock-bottom prices, will have difficulty funding new investment. Anticipating that possibility, investors recently began to take profits from the biggest names in the technology sector. Tesla for example, recently saw significant profit taking after a sizable run up in price, and it was added to the S&P 500 index at the end of 2020.
There is talk that the Federal Reserve will start raising rates in the first quarter of 2021. We think it might take a bit longer based on the Fed’s desire to get the U.S. back to full employment. Additionally, the Fed has indicated that it is comfortable allowing inflation to run “hot” — above its 2% target — for a period of time if monetary policy is helping to hasten job creation amid elevated unemployment. If rates start to rise, we do expect volatility in both stock and bond markets. We have continued to refine our investment portfolios with that in mind. Core taxable and municipal bonds can provide stability when markets get choppy, and we have been adding those higher quality bonds to client portfolios over the last year. When we take a step back and look at the most recent short-term volatility with a long-term perspective it is easy to be excited about the future. The trends of digitization and innovation are still going to be what drives business long-term. We are invested with that in mind and our portfolios are designed to weather short-term uncertainty so our clients can have long-term success.
Our mission as your investment advisor remains unchanged but in many ways our business will never be the same, post pandemic. Over the past year we have continued to meet with most of you at our regularly scheduled times for review. The Zoom meeting became the super star of the pandemic lock down. Luckily, we had adopted that technology several years ago as we dealt with an ever more global client base. Most of us here at BF&A have been vaccinated and we have resumed meeting with clients in our Sunset Road office. Moving forward, you will have the choice of coming in for a face-to-face meeting or remote conferencing. We look forward to talking soon, in whatever way is most convenient for you.
Thank you. We appreciate you.
All the best-
— Priscilla "Cilla" McKinley
President - Brent Forrest & Associates LLC
*Brent Forrest & Associates, LLC may discuss and display, charts, graphs, formulas, and specific holdings which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. These are offered with limited information and should not be used on their own to make investment decisions.