Equity markets rose in April as the US economy continued its recovery. Large cap US stocks led the way, but other equity categories were also positive. Fixed income markets were up modestly as well. Rates stabilized after a fairly sharp rise to start the year, while appetite for corporate credit remained strong.
The talking heads are all abuzz about inflation, as commodity prices are rising and the labor market seems to be tightening. The debate is whether these things are transitory or more structural and permanent in nature. Our read is that some inflation may be transitory, some may be less transitory.
It is said that the cure for high prices is high prices. Higher wages tend to bring workers back into the job market, especially when public policy begins to nudge them in that direction. Higher commodity prices tend to bring increased supply and potentially decrease demand. The question, in our minds, is what will keep prices rising and what are investors to do?
We think the question of prices rising is heavily dependent on government policy and spending. The continuation of that spending past this year may be contingent on future elections. However, the market may not take that view for some time. Fortunately, our view on what we, as investors, should do has not changed much: own quality businesses with bright prospects and hopefully some pricing power.