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Many Americans are feeling the effects of inflation. Recently, the U.S. Bureau of Labor Statistics report showed inflation increased by 9.1%, the highest increase since November 1981. It is easy to point fingers at why inflation is high, but our team of financial advisors is here to help you and your family navigate the current economy.
Inflation is one of the most used economic terms, but do you know what it means or the factors involved? Inflation measures how prices increase over a period of time, affecting the purchasing power (value) of your dollar.
Many factors go into inflation, but one of the biggest drivers of inflation is the price of oil.
Recently, many have feared the U.S. is heading for a recession. In mid-June, the United States fell into a bear market. A bear market and recession are two different things, but both relate to the well-being of the economy.
A bear market is a decline of 20% or more in a major market index (i.e., DJIA, S&P 500, Russell 2000, NASDAQ and MSCI EAFE). A bear market does not automatically lead to a recession but signals that the economy is under pressure.
A recession occurs when a negative Gross Domestic Product (GDP) lasts for two consecutive calendar quarters. This generally results in rising unemployment, a decrease in sales and an overall decline in the economy. A recession needs to be declared by the National Bureau of Economic Research (NBER).
Recessions are a normal part of the economic cycle, but they are not easy to predict. History shows that for every downturn, there is a recovery. No matter what, we won’t stay in a recession forever. Many people worry that it is different this time or try to compare our current economy to past recessions. Here are a few examples when Americans were concerned about the future of the economy and were worried that they had never experienced a recession like this before.
The United States had its first recorded case of the Spanish Flu in Kansas that subsequently killed an estimated 50 to 100 million young adults. It killed an estimated 8 to 10% of all 20- to 30-year olds worldwide. This took a hit on the economy, but over the next decade (1920-1929) the stock market quadrupled.
When Hitler invaded Poland, sparking World War II, the Dow still increased 10% the next day. When Pearl Harbor occurred, the Dow dropped 2.9% but recovered within one month. From 1939-1945, the Dow gained over 40% (7% per year) and continued until the bear market of 1957.
Many of us probably remember the crisis in 2009 when the entire financial system as we knew it was in jeopardy. It made unemployment and inflation rise to new extremes many had not seen in their lifetime. One year later, the S&P 500 was up 47.3%.
During the COVID-19 Pandemic, the S&P 500 dropped 34%. Six months later, the S&P 500 was up 53%.
Philip Blancato, CEO & President of Ladenburg Thalmann Asset Management, has stated that after the summer driving season, he hopes to see a normal demand reduction in gas prices. Assuming employment stays strong and the supply chain continues to normalize, we could see a break in inflation and a September rally in the stock market.
Now that we have touched on what inflation is, why it exists and projected what inflation might do in the future, let’s focus on it right now. The national inflation rate and your personal inflation rate are going to be different, especially depending on where you live. Here are some steps that you can do right now to help with inflation.
If you are unsure of what to do, allow our team of trusted financial advisors to aid you in your financial planning goals!
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