Certainly, the biggest drag on the stock market right now is inflation and the possibility of a recession as the Federal Reserve tries to slow it down. Most recently, though, several indicators are pointing to the possibility that inflation has already peaked this past June. The main driver of our current high inflation numbers have been energy prices, particularly diesel and gasoline prices, which contribute to the costs of almost every product that we use. The following chart shows the significant drop of the price of oil from its highs in June:
Another indicator that I like to look at are shipping costs. Shipping costs from Shanghai to Los Angeles has dropped 40% since peaking in mid 2021, and are down over 15% since the start of 2022.
Here some other prices that have dropped substantially recently:
- Iron Ore prices have fallen nearly 50% from their highs in July 2021 and have fallen 25% since the start of June.
- Copper prices have fallen nearly 30% from their highs in March 2022 and have fallen 20% since the start of June.
- Aluminum prices have fallen 35% from their highs in March 2022 and have fallen 25% since the start of June.
- Tin prices have fallen 50% from their highs in March 2022 and have fallen 23% since the start of June.
- Cotton prices have fallen 40% from their highs in May 2022, with nearly all of that since a peak in early June.
- Corn prices have fallen 25% from their highs in May 2022, with most of that since a peak in early June.
- Wheat prices have fallen 40% from their highs in March 2022 and have fallen 23% since the start of June.
- Lumber prices have fallen 60% from their highs in May 2021, 55% from the highs in March 2022, and modestly risen since the start of June.
Home prices have also started dropping as demand is being curbed by higher mortgage rates.
Of course, the Federal Reserve is looking at all of these numbers as well and such big price drops might give them pause on raising interest rates as furious as they have done in the recent past. Those higher rates are doing their job so they might want to pump the brakes a little so they don’t raise rates so much that they put us into a recession. We shall see soon enough.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
