Traffic Jam
How Supply-Chain Issues Might Get Sorted Out
I’ll always enjoy the fond memories I had growing up in Pasadena, CA. One of the downfalls of living pretty much anywhere in L.A., is, the traffic!
The most common form of traffic occurs when there are more cars on the road than the road can support. We call this congestion. In the U.S., we have an issue with congestion outside of the freeways and it is creating serious problems. Our supply chains are backed up and the Ports around the U.S. are having an endless Traffic Jam. This has caused many small to mid-sized businesses to be without product and is creating inflation in just about every sector one can think of. I’d like to shed some light on how the congestion was created, and, how it might get sorted out. I’ve come to some of these conclusions based on a conversation with a representative of the Ports of L.A. and Long Beach.
Some of the main drivers that have contributed to the congestion at the Ports are the following 1).A shift in consumer spending habits from services to goods that resulted in significant increases in imports. 2). Doubling of e-commerce activity during the same period puts more stress on warehousing facilities not designed as e-commerce hubs. 3). There has also been displaced warehouse workers and truckers during the pandemic. When you combine this with the above referenced change in spending habits, there has now been a shortage of warehouse labor when it’s needed the most. All of this leads to inland congestion at warehouses where there is nowhere for the cargo to land which causes cargo to be left longer in boxes and chassis inland and on the docks. This, then, reduces equipment supply and space to unload the ships waiting to come in.
So how do we get out of this mess?
Some potential catalysts might include getting the largest beneficial cargo owners like Target, Home Depot and Walmart to remove their cargo from the marine terminals as quickly as possible. This will allow for empty boxes to return in a timely manner which will reduce idle storage space on terminals and allow for faster offloading. Working with the trucking community to take advantage of open appointment times at terminals that go unused daily is also an important task.
Until the warehousing system can accept more cargo in a more efficient way, the current situation is most likely to persist. Normal spending trends after the holiday season might also reduce demand and allow the system to catch up as well.
It’s quite fascinating to see the process by which household items get from a ship to your kitchen table! I’m optimistic and confident the current supply chain issues will get sorted out. It’s also possible that the labor force will increase in the trucking, warehouse and distribution channels as we’ve got extended unemployment benefits ceasing. Onward and upward we go, and, enjoy the Fall Season! Here’s a look at how the markets did in the 3rd quarter, and, year to date.
Positive Quote:
"What is in the well of the heart will come up through the bucket of the mouth."
- J. Vernon McGee
Fun Fact:
Our 3 boys got their first stripe in Jiu Jitsu.
The Markets
Third Quarter through September 30, 2021
Overall, the third quarter was a roller-coaster ride for the market. The Dow, the Russell 2000, the Nasdaq, and the Global Dow lost value, while the S&P 500 was able to eke out a quarterly gain. Treasury yields, the dollar, and crude oil prices ended the third quarter higher, while gold prices dipped lower. Financials, information technology, communication services, and health care ended the quarter in the black. Energy, industrials, and materials fell by at least 4.5%. Despite the downturns, the benchmark indexes remain well ahead of their 2020 closing values, led by the S&P 500, which ended the quarter nearly 15.0% over last year's pace.
The yield on 10-year Treasuries fell 30 basis points. Crude oil prices increased $14.17 per barrel, or 24.0%, in the third quarter. The dollar lost nearly 1.0%, while gold prices advanced 3.6%. The national average retail price for regular gasoline was $3.175 per gallon on September 27, up from the August 30 price of $3.139 and higher than the June 28 price of $3.091.
July kicked off the third quarter with large caps outperforming small caps. The S&P 500, the Dow, and the Nasdaq advanced, reaching record highs along the way, while the small caps of the Russell 2000 fell over 3.5%. Treasury yields, the dollar, and crude oil prices also declined. Gold prices advanced. By the end of the month, over 80% of the S&P 500 companies that reported earnings exceeded expectations. COVID cases surged as the Delta variant spread across the country. Inflation figures continued to rise. The Consumer Price Index rose 0.9%, the Producer Price Index climbed 1.0%, both import and export prices advanced 1.0%, and retail sales increased 0.6%. The Federal Reserve noted that the economic recovery remained on track. Second-quarter gross domestic product advanced at an annualized rate of 6.5%, according to the initial estimate from the Bureau of Economic Analysis. Health care led the market sectors, followed by real estate, utilities, information technology, and communication services. Financials and energy lagged.
Equities continued their strong showing in August, recording several record highs during the month. Strong corporate earnings reports and improving economic conditions helped bolster investor confidence, despite the increasing prevalence of the Delta variant. Growth stocks outpaced value shares. Financials and communication services led the market sectors, while energy lagged. The Nasdaq paced the indexes, climbing 4.0%, followed by the S&P 500 (2.9%), the Russell 2000 (2.1%), the Global Dow (2.1%), and the Dow (1.2%). Ten-year Treasury yields jumped 7 basis points to close the month at 1.30%. The dollar rose by 0.6%, while crude oil prices fell 7.2% to $68.51 per barrel on the last business day of the month. Gold prices changed little, trading at $1,817.50 per ounce. The jobs sector improved, adding 943,000 new jobs. Wage gains were strong, while unemployment claims dipped.
Following a strong July and August, September saw the market struggle with volatility. Traders had other concerns to deal with, including slowing economic growth, elevated inflation, supply-chain disruptions, a global energy crunch, and China's regulatory restrictions. In addition, investors are facing the prospects of the Federal Reserve beginning to wind down its stimulus measures. Each of the benchmark indexes lost value, with the Nasdaq falling more than 5.0% and the S&P 500 dipping 4.8%. Among the market sectors, energy climbed 8.5%, while the remaining sectors ended well in the red. Crude oil prices rose more than 9.0% to close the month over $75.00 per barrel. The dollar and 10-year Treasury yields advanced, while gold prices declined.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Eye on the Month Ahead
Heading into the fourth quarter of 2021, several economic indicators have improved, while a few have waned. Real estate and manufacturing slowed from the pace set earlier in the year. GDP posted strong data for the second quarter, although some estimates suggest that the third quarter will not be quite as strong. On the jobs front, there were nearly 11 million jobs available but nearly 8.7 million unemployed actively looking for work, further widening the gap between job openings and hires.
Data sources: Contribution provided by Forefield. Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.
I look forward to continuing to guide clients through 2021 and beyond. If you have a friend or family member that you think would benefit from working with me, please don’t hesitate to make the introduction. Thank you for your trust and business.
