What Is Impacting Today’s Market?
Over the past months we have explained how it’s important to stick to your overall financial plan rather than risking quick moves to capture every gain possible. But let’s dig into factors that have brought volatility to today’s market from low unemployment, business growth, to inflation.
Businesses Strive For Constant Growth
Even in a stable environment it can be difficult for companies to run their business and maintain success. To continue pushing forward reaching higher highs of profitability, income, and sales is quite an accomplishment.
Now, with the presence of an unstable environment, consider how challenging companies see the days ahead. How do they continue with the uncertainty of whether their same suppliers and materials will be in tact twelve months ahead with a tariff’s potential impact? In light of the tariffs every business has to consider their current status and who they depend on for that.
Low Unemployment & Tight Labor Market
Companies depend on the labor of employees to produce goods and services. A factor we’ve heard repeated is the tight labor market we are experiencing in such companies as fast food, retail, and manufacturing. This is a positive that so many are working and able to earn a wage to support their families.
From an employer’s perspective if they plan to increase production goals they need to do one of two things: increase employee productivity or increase employees.
If it’s hard to find employees, given the fact that many are already employed, then they try to entice employees with higher wages. This ultimately flows through to the consumer in the form of higher prices for the products. This brings us to our final point about rising costs also known as inflation.
Don’t Confuse Higher Inflation With High Inflation!
As of May 2018 core inflation measured 2.2%, versus a 50-year average of 4%. We are still well below the historical average for inflation. Of course this is a factor we will continue to watch because this can make a drastic difference for your overall financial plan. The more expensive things cost the higher return needed or the less time assets may last.
Understanding how various factors affect today’s market can help you to shape your financial plan. The three items we’ve discussed only dust the surface to everything happening in the economy. But this explanation can help you better understand why these factors matter when you hear them talked about in the news.
Stick to your long-term investing plan! Today’s market will continue to move through economic cycles as it has before. With a long term perspective you know that the market moves higher over time.