Halftime 2021
On May 25th, the number of restaurant reservations made on OpenTable returned to pre-pandemic levels and during June, the average number of video streaming services utilized per U.S. user declined for the first time. “Cord-cutting” is rising again and the number of Costco memberships is now higher than the number of U.S. households that pay for cable TV (Bloomberg). TSA check-ins are now at 2.2 million per day, more than tripling from 600,000 a year ago and nearing their pre-pandemic level of 2.5 million. GasBuddy, an app to find the cheapest gas stations nearby, reports that gasoline demand is 40% higher than a year ago and Hilton Hotels’ CEO highlighted that 93% of its rooms were occupied over the Memorial Day weekend. Despite a pandemic, the Financial Times reported that more than 5 million people worldwide became U.S. Dollar millionaires last year.
Many countries continue to struggle with Covid and the risk from new variants remains. However, the above metrics reflect a collective vibe in the U.S. that the end of the Covid-19 crisis is in sight and the financial markets have responded accordingly. The S&P 500 Index has returned 15.2% year-to-date and there are now five companies with equity market capitalizations exceeding $1 trillion. This highly exclusive club includes Apple, Microsoft, Amazon, Alphabet (Google) and Facebook but this year’s returns have been driven mostly by a rotation from “growth” and “stay at home” stocks into “value” and “economic reopening” stocks. Financial and energy stocks have been leading the way while Tesla’s shares have fallen by a third and a 33% decline in toilet paper sales and softening demand for bleach have turned Kimberly Clark and Clorox from outperformers into regulars on the Wall Street Journal’s 52-week low list.
Disruptions to supply chains, extraordinary monetary and fiscal stimulus and pent-up demand have contributed to an inflation rate of 5.9% for the 12 months ending in May. U.S. gasoline prices now average above $3 per gallon for the first time in more than six years. Lumber prices have nearly tripled since the start of the pandemic. The median home price has advanced 23.6% from a year earlier to just over $350,000 while the number of licensed realtors (1.45 million) noticeably exceeds the supply of homes for sale (1.04 million). The average used-vehicle price was up more than 30% in May from a year earlier even though the average vehicle age on U.S. roadways has increased to 12.1 years – the oldest level recorded. The Fed suggests these consumer price increases are transitory but also recently stated that they will likely raise rates twice during 2023. The need to raise rates seems inconsistent with their use of the word “transitory” but to date, the financial markets have shrugged this off.
Recently released U.S. census data suggests that about half of its population was born after 1981 which was the last time consumer prices moved upwards meaningfully. As such, 50% of consumers are experiencing material price increases for the first time. It will be interesting to observe how consumers respond but with Levi’s CEO suggesting that 25% of shoppers have a different size today than before the pandemic, suggesting that many consumers are spending because of genuine demand. The census data also highlighted how the U.S. population is starting to collectively age with the number of people over 65 now outnumbering children under the age of 5 for the first time in its history. While it seems that sheltering in place during Covid-19 should have helped foster procreation, just over 9 months after Covid-19 related lockdowns in the U.S., the birth rate plummeted by 8% and 25 states have been reporting a greater number of deaths than births. Many other countries are aging more rapidly – in Japan, the number of adult diapers sold is now greater than for babies. However, there have been some areas experiencing noticeable growth with Utah (18.4%), Idaho (17.3%) and Texas (15.9%) leading the way. Florida, often cynically referred to as the “sixth borough,” now has a population that is larger than all of New York State’s and the number of West Palm Beach area luxury home sales increased 116% year-over-year (Redfin), the largest gain of any major U.S. metro area. U-Haul’s pricing has responded accordingly with the cost to move from New York City to West Palm Beach costing 60% more than moving in the opposite direction. Demographics may or may not be destiny, but the most recent census data highlights many trends that may provide attractive long-term investment opportunities.
Inlet Private Wealth just celebrated its third anniversary! The past three years have passed much faster than seems possible and while much has changed in the world during this time, our clients and the financial, investment and legal professionals we work with have remained extremely loyal and tremendously supportive. We are grateful for the opportunity to work with such wonderful people and for the confidence and trust they have placed in us.
Ted E. Furniss, CFA – July 2021
IMPORTANT DISCLAIMER: Inlet Private Wealth®, LLC (“Inlet Private Wealth®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Unless otherwise noted, all data has been obtained via Bloomberg®. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).