Streetwise for Sunday, August 22, 2021

As you continue to peer into that black abyss of what lies ahead, remember two key principles: That the performance of individual securities is uncertain, and that the performance of an equity portfolio is uncertain in the short-term.

Long-term projections, a year or more, are feasible for most portfolios if they can encompass a substantial degree of mathematical reliability.

Regardless, many investors and the public in general remain twitchy, skittish, and anxious given the unsettled political arena. Translated, it means you are facing trade tensions, confusing economic data, and uncertain monetary and fiscal policy. Add in what is happening in Afghanistan and things really become confusing.

Any one of those factors could push stocks in a bullish or bearish direction. Add in the seemingly endless political drama or theatre, you pick, and it is no wonder that dubious logic is often taking the place of precise analytical thinking.

Meanwhile, on the surface the equity markets appear to be blindly climbing higher. However, some of us might remember what was affectionately referred to the “Nifty 50.”

For the younger set the Nifty-50 referred to the fifty most popular large-cap stocks that traded at high valuations in the 1960s and 1970s. They included household names such as Xerox, IBM, Polaroid, and Coca-Cola.

Due to their proven growth records and continual increases in dividends, the Nifty Fifty were viewed as "one-decision" picks, meaning investors were told to buy and never sell.

They propelled the bull market of the early 1970s, only to see it come crashing down in the 1973-74 bear market. That period was marked by political scandal and rising oil prices and interest rates.

Today we have the FAANG stocks, an acronym referring to the five most popular and best-performing American technology companies: Facebook, Amazon, Apple, Netflix, and Alphabet (formerly known as Google). To that group I would add in Microsoft. Nevertheless, you get the general idea. Some things never change.

What is new today is the constant talk, worry, and concern that inflation is the latest fear to infect the public in general and not just investors. I stand firm on my position that to a great extent the concerns are more in the minds of the public than is the case.

Consider the following: Bloomberg Economics has created a dashboard of price gauges, alternative core measures and inflation expectations.

To summarize, long-horizon consumer inflation expectations did tick back up to the top end of the pandemic range in August. And debate will not end with one month's data, particularly as the sources of upward pressure begin to rotate away from Covid-impacted goods inflation, and toward services categories that tend to be more durable.

Commodity price inflation is decelerating on a year-over-year basis, though still at a high level. Recent ISM and regional manufacturing surveys hint reopening-related bottlenecks are easing, though still far from normal.

Moreover, it will take into 2022 to fully separate the transitory forces pushing prices higher from durable increases in inflation emanating from rents and labor-sensitive services categories. For now, though, the weight of the evidence supports the transitory thesis.

Now, I understand that no amount of prose can counter the emotions felt as a loquacious pundit discusses a day's tumultuous trading activity on Wall Street. Therefore, I would like you to consider my often-recounted words of Lucien O. Hooper once again, a Wall Street legend.

"What always impresses me," he wrote, "is that the relaxed investor is usually better informed and more understanding of essential values; he is patient, less emotional and avoids behaving like Cassius (brother-in-law to Brutus and a key assassin of Caesar) by 'thinking too much'."

And if some degree of panic does grip Wall Street, how will you react? Yes, it is an arduous task to maintain your investment confidence when all around you are losing theirs. To invest when things look grim; to buy when the so-called experts are promulgating the idea of exiting stage left.

Bernard Baruch, adviser to presidents, was even more succinct when he said, "Never follow the crowd."

Above all, recognize and heed the wisdom of Ecclesiastes' profound warning:

The race is not always to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happeneth to them all.

Ecclesiastes 9:11.

Lauren Rudd is a Managing Director with Raymond James & Associates, Inc., member NYSE/SIPC. Contact him at 941-706-3449 or Lauren.Rudd@RaymondJames.com. All opinions are solely those of the author. This material is provided for informational purposes only, is not a recommendation and should not be relied on for investment decisions. Investing involves risk and you may incur a loss regardless of strategy selected. Past performance is no guarantee of future results.