The crucial area for investors over the next six months will be inflation-related data in my opinion.
Historically, wage growth is a key inflationary component. As such, moves by the federal and state legislatures to raise the minimum wage will be heavily scrutinized in my view.
Contract negotiations between large employers and their unions that lock in a series of salary increases, which may include cost of living adjustments (COLA), are also part of investors’ inflation watch list. The recent US data show that wages are rising.
Government leaders have to maintain a fragile balance between the country’s economic stewardship and their own political survival.
With the investment community increasingly worried about growing inflation data points, US government financial authorities have emphasized the transitory nature of the recent increases in inflation.
They point to long-term technology trends like more powerful and cheaper semiconductor and data storage to underscore their argument.
Then there’s the relatively low capacity-utilization rates in many industries.
In my opinion, the other part of the Federal Reserve and Treasury Department’s mission is to support the Biden Administration’s social equality and economic agendas.
As an example, the current SEC Commissioner Allison Herren Lee recently advocated that corporate boards integrate environmental, social and governance matters into their oversight role.
In my opinion, government officials can pursue such broader social goals when financial markets are rising and doing well.
If markets turn down, investors will focus more on the economic fundamentals.
This piece is provided as educational information only and is not intended to provide investment or other advice. This material is not to be construed as a recommendation or solicitation to buy or sell any security, financial product, instrument, or to participate in any particular trading strategy.