3 Things You Need to Know This Week | Global Inflation, Fed Minutes, US Sentiment

Transcript

Ben Thistlethwaite:

Hello and welcome to 3 Things You Need to Know This Week. This is our regular series designed to help you sift through the noise across financial media and to understand what really matters for markets. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. And with that, here are three things you need to know this week.

First, April inflation.

This week will bring fresh inflation readings from Canada, the eurozone, the UK and Japan. Canada reports on Tuesday, followed by the eurozone and the UK on Wednesday and Japan on Friday. In March, all of these readings ranged from 3.3% in the UK down to 1.5% in Japan. To us, that variation in inflation rates underscores the importance of thinking globally. Today, money moves across borders with relative ease, so we think global money supply and global inflation are what really matter when assessing the economic drivers impacting stocks. Many investors are wondering how the recent spike in energy prices-driven by the conflict in the Middle East- how that could affect April's inflation numbers. Energy prices are among the most visible costs that consumers face. But, while these spikes can be painful in the short term, it's really important to remember that they're often temporary. For investors worried about inflation, history offers a reassuring perspective. Stocks have consistently served as a strong long-term hedge against inflation. With average annual returns of around 10%, stocks have far outpaced inflation's typical 3% rate rise. We believe owning stocks remains one of the most effective ways to offset inflation over time and to improve your likelihood of reaching your long-term financial goals.

Next, the Fed meeting minutes.

On Wednesday, the US Federal Reserve will release minutes from its April policy meeting, where it held rates steady for the third consecutive time, although that decision was not unanimous. At the April meeting, Fed Governor Stephen Miran voted to cut interest rates- that's something he's done at every meeting since September. To us, this really highlights the fact that policy rate decisions are made through a collective vote, with differing perspectives among members helping shape the Fed's overall direction. Regardless of what the Fed meeting minutes reveal, it's impossible to know how Fed officials will interpret incoming data before their next meeting. We think trying to predict the Fed's next move is often ineffective, especially since officials can say one thing and later do another. These minutes may generate some investor headlines, but investors should keep them in perspective. First, forecasting the Fed's actions is inherently difficult. Policymakers frequently shift their views as new data emerges, and what could seem clear today may change tomorrow. Second, the minutes are not full transcripts. They're carefully edited and curated for public release. This means they may omit critical context and details. As we've noted before, monetary policy is just one of many factors influencing markets, and its effect is not predetermined. That's why we believe long-term investors don't really need to focus on interpreting curated meeting minutes or trying to predict the Fed's next move.

Finally, US consumer sentiment.

This Friday, the University of Michigan will release its final consumer sentiment reading for May. Recent US consumer confidence data have shown sharp declines, but that isn't really surprising. Consumer sentiment tends to rise and fall alongside stocks, economic data and even the overall tone of financial news coverage. Given the recent market volatility, some weakness in sentiment is really to be expected. However, this raises an important question: do the current economic fundamentals really justify such a gloomy reading? Often, they don't. It's really not unusual to see a disconnect between how people feel and how stocks in the broader economy actually perform. Looking ahead, we believe markets will move most on the gap between expectations and economic reality. Falling sentiment right now sets a lower bar for reality to clear. This should actually help support the ongoing bull market.

And that's it for this episode of 3 Things You Need to Know This Week.

For more of our thoughts on markets, check out This Week in Review. It's released every Friday. You can also visit FisherInvestments.com. Thanks for tuning in and don't forget to hit like and subscribe.