Stocks now represent a record-high percentage of financial assets among US households, reports say

Stock Market Bubble
  • Stocks now represent 41% of US households’ financial assets, according to data from JPMorgan and the Federal Reserve.
  • Robinhood tripled its revenue from payment for order flow in the first quarter amid a rise in retail traders.
  • Warren Buffett warns investors are “just as sure” of themselves as they were in 1989 before a mini-crash.
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Americans are now holding a higher percentage of their net worth in stocks than ever before, the Wall Street Journal reported on Monday based on data from JPMorgan and the Federal Reserve.

US households increased their equity holdings to a record 41% of their total financial assets in April.

Nikolaos Panigirtzoglou, an analyst at JPMorgan, released the findings from data going back to 1952 that includes 401(k) retirement accounts. The analyst said appreciating share prices coupled with increased buying were the main factors for the elevated allocations.

The news comes just two weeks after FINRA announced margin debt – the amount of money investors borrow from their brokers – hit another record high in March, topping $822 billion.

The rise in interest in equity markets and the use of debt to invest in them comes amid a boom for retail traders.

New apps like Robinhood and Webull have taken the market by storm, adding millions of new investors and traders over the past few years.

Robinhood has grown so much it was able to more than triple the revenue it earns from payment for order flow in the first quarter of 2021.

The rise in revenue from active trading came after Robinhood added some 3 million new members in the first quarter of 2020 alone during the height of the pandemic, per Bloomberg.

A new study from the University of Western Australia found that trading activity among retail investors spiked during the pandemic as investors had more time and money to invest in online trading.

Robinhood and other trading apps have repeatedly graced the top of Apple and Google’s app stores amidst the meteoric rise in retail trading.

And while many market commentators are cheering the inclusive move, some have issued warnings.

Warren Buffett warned about the self-confident nature of Wall Street and the new breed of retail investors in Berkshire Hathaway’s annual shareholder meeting on Saturday.

“We were just as sure of ourselves, and Wall Street was, in 1989 as we are today. But the world can change in very, very dramatic ways,” the ‘oracle of Omaha’ said.

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A non-profit will launch 5 pilot programs over the next year to test the viability of a central bank digital currency in the US

Federal Reserve
Photo taken on Nov. 5, 2020 shows the U.S. Federal Reserve in Washington, D.C., the United States.

  • The non-profit Digital Dollar Project will launch five pilot programs to test the viability of central bank digital currencies in the next 12 months.
  • The initiative is backed by a partnership between Accenture and the Digital Dollar Foundation.
  • CBDCs are digital versions of a banknote.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The non-profit Digital Dollar Project will launch at least five pilot programs to test the viability of a US central bank digital currency, or “digital dollar”, in the next 12 months, the organization announced Monday.

The initiative – backed by a partnership between Accenture and the Digital Dollar Foundation – was created last year to look into the potential advantages of CBDCs in the US.

CBDCs, digital versions of banknotes, are meant to be more instantaneous and seamless thanks to digital processing. Americans at this point can currently only hold central-bank-issued money in physical coins and notes.

Among others goals, the Digital Dollar Project aims to explore, analyze and identify technical and functional requirements of CBDC, assess benefits and challenges, and consider potential use cases for both retail and wholesale commercial utilization.

It will release its findings for use in academic study, as well as policy consideration by Congress.

“The US doesn’t need to be first to the central bank digital currency, but it does need to be a leader in setting standards for the digital future of money,” J. Christopher Giancarlo, former chairman of the US Commodity Futures Trading Commission and co-founder of the Digital Dollar Foundation, said in a statement.

The Federal Reserve in 2020 partnered with the Massachusetts Institute of Technology to research CBDCs. The US central bank is still being cautious, though, with Fed chair Jerome Powell saying last week that it is “far more important” to get it right than to do it quickly.

“Central bank digital currencies will play an important role in how we modernize our financial systems,” David Treat, a senior managing director at Accenture, said in a statement. Treat leads the company’s blockchain and multi-party systems practice globally.

Accenture has made an initial investment to support the initiative’s operational requirements and intends to match the funds necessary to launch the first five pilot programs.

To date, a number of central banks have been exploring CBDCs spurred by the cryptocurrency momentum that has rapidly risen as of late.

China is leading the race, after developing its digital currency electronic payment CBDC in 2014 and testing a pilot in 2020.

Norway in April announced it will start testing various solutions for a CBDC as the world’s most cashless country moves to further decrease cash transactions. The UK in the same month said it is coordinating exploratory work on a potential CBDC, dubbed “britcoin.”

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US GDP will exceed its pre-pandemic peak by the end of June, Atlanta Fed model says

restaurants
  • The Atlanta Fed’s GDPNow estimate sees economic growth reaching 10.4% in the second quarter.
  • Such an expansion would place US GDP above its pre-pandemic record and mark a full recovery.
  • First-quarter growth reached 6.4% as stimulus and vaccination allowed the economy to reopen.
  • See more stories on Insider’s business page.

By at least one popular measure, the US economy will fully recover and exceed its pre-pandemic strength in the second quarter.

US gross domestic product is expected to grow at an annualized rate of 10.4% through the quarter that ends in June, according to the Federal Reserve Bank of Atlanta’s GDPNow model. Growth at that pace would place economic output at a new record high, surpassing the peak seen during the fourth quarter of 2019. It would also be the second-strongest rate of growth since 1978, exceeded only by the record-breaking expansion seen through the third quarter of 2020.

The central bank’s nowcast is a type of projection that is updated as new economic data is published. GDPNow isn’t an official forecast from the Atlanta Fed, and is instead used to narrow down where quarterly growth is likely to land. The model also ignores the pandemic’s impact beyond its influence on source data such as retail sales and global trade, according to the Fed.

The first GDPNow reading for the second quarter was published on Friday, just one day after the Commerce Department published its initial estimate of first-quarter growth. US GDP expanded at an annualized rate of 6.4% in the first three months of the year, missing the median estimate of 6.7% but still showing a sharp acceleration from the prior period. The jump was primarily fueled by widespread vaccination, gradual reopening, and stimulus passed by former President Donald Trump and President Joe Biden.

To be sure, the last quarter’s expansion came in softer than the Atlanta Fed’s final first-quarter estimate of 7.9%.

Though some individual indicators have already surpassed their pre-pandemic levels and signal a strong recovery, GDP remains just below its previous peak. Following the first-quarter reading, GDP has retraced about 96% of its pandemic-era decline. With data tracking consumer spending and hiring trending higher as the economy reopens further, the US is largely expected to complete its GDP recovery in the next two months.

Economists outside the Fed also see growth accelerating through the current quarter. The consensus estimate from a survey of forecasters calls for annualized growth of just under 9% in the second quarter. The most bullish estimates see GDP expanding at a rate of more than 11%, while the least optimistic expect growth to land at about 6%.

The estimates underscore the fact that, should vaccination continue and case counts decline further, the US is on track for its strongest rate of annual growth in decades. The International Monetary Fund estimates GDP will grow 6.4% through all of 2021, exceeding global growth of about 6% and marking the fastest rate of expansion since the early 1980s. Separately, Federal Reserve officials hold a median estimate of 6.5% growth this year.

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Billionaire investor Leon Cooperman says the stock market will be lower a year from now due to higher taxes, rising interest rates, and inflation that will surprise the Fed

leon cooperman
  • Billionaire investor Leon Cooperman said the stock market will be lower a year from now.
  • He sees the higher taxes, rising interest rates, and rising inflation weighing on stocks.
  • Cooperman also said the Fed will be “surprised” at the pickup in inflation.
  • See more stories on Insider’s business page.

Leon Cooperman told CNBC on Friday the stock market will be lower a year from today as stocks face downward pressure from rising interest rates, higher taxes, and inflation.

His comments come just one day after the S&P 500 closed at another record high and brought its year-to-date gains to 12%.

The billionaire Omega Advisors chairman said that he’s currently a “fully invested bear,” and he doesn’t see any conditions that would lead to a significant market decline in the near term.

But he emphasized that the US is “pulling demand forward” and the longer-term outlook is not particularly favorable.

“If you spoke to a hundred economists today and he asked them what their view is of the potential real growth of the US economy, the response would be centered around 2%,” Cooperman said. “We’re growing this year four to five times potential, yet the Fed is persistent in keeping interest rates at near zero. That doesn’t make any great sense to me. It’s just pushing people out on the risk curve.”

Stocks are forward looking instruments, and gained last year amid a pandemic on the expectation of a massive economic rebound in the future. Now that US GDP numbers are demonstrating that a rebound is currently underway, Cooperman is questioning how much further the market can continue its pace of gains.

He also said that the multi-trillion stimulus packages in Washington’s pipeline won’t be the most effective way of bringing the labor market back to pre-pandemic levels, and he’s concerned about debt.

“Who pays when the party’s over?” said the investor. “We’re just racking up debt at an extraordinarily rapid rate.”

Cooperman added that he’s concerned about what rising inflation could do to stocks. While Federal Reserve chairman Jerome Powell continues to say that inflationary pressures will be “transitory,” Cooperman disagrees.

“I think that Mr. Powell will be surprised by inflation. It’s not going to be as quiescent and transitory as he thinks. I think the Fed will be forced to say something before the end of 2022,” Cooperman said.

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Inflation nears decade high as reopening juices price growth across the economy

People shopping
Bolstered by three rounds of stimulus checks, US consumers are spending more.

  • The PCE price index – a popular inflation gauge – rose to 3.5% from 1.7% in the first quarter.
  • The measure signals that reopening and stimulus boosted demand, lifting prices at a nearly decade-high rate.
  • The Fed expects inflation to climb but only temporarily, before fading to normal levels.
  • See more stories on Insider’s business page.

The inflation that economists and the Federal Reserve have been warning of for months has arrived.

The Personal Consumption Expenditures price index – among the most popular measures of nationwide price growth – rose in the first quarter to 3.5% from 1.7%, the Commerce Department said Thursday. The reading marks the second-fastest pace of price growth since 2011, surpassed only by a 3.7% rate in the third quarter of 2020.

Core PCE inflation, which leaves out volatile food and energy prices, rose to 2.3% in the first quarter from 1.3%.

The stronger inflation was largely attributed to the quarter’s economic rebound. US gross domestic product grew at an annualized rate of 6.4% in the first three months of 2021, according to the Commerce Department. That rate signals the second-strongest quarter of expansion since 2003, surpassed only by the record-breaking surge seen in the third quarter of last year.

The quarter ending in March saw stimulus passed by former President Donald Trump and President Joe Biden drive a sharp increase in spending. Widespread vaccination and falling COVID-19 case counts also boosted economic activity as governments eased lockdowns and businesses reopened.

The uptick in price inflation mirrors a similar signal from the Consumer Price Index from earlier in April. The inflation gauge rose 0.6% from February to March, slightly exceeding economist forecasts. More remarkable was a 2.6% year-over-year gain that market the strongest jump in price growth of the pandemic era.

Inflation was at the center of the debate over new stimulus, with Republicans and even moderate Democrats warning that a colossal package could spark rampant price growth and create a new economic crisis.

On the surface, the latest data suggests those warnings were correct. Yet the Fed has long anticipated that any spike in inflation through the recovery would be “transitory” and quickly fade. For one, year-over-year measures of price growth are somewhat skewed by data from the first months of the pandemic, when initial lockdowns saw price growth turn negative. That dynamic, known as base effects, leaves a lower bar for the present-day readings to clear.

The pickup is also unlikely to reverse the decades-long trend of price growth landing below the Fed’s target, according to Fed Chair Jerome Powell.

“An episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation into the future,” the central bank chief said Wednesday. “It is the Fed’s job to make sure that does not happen.”

The Fed adjusted its framework in August to pursue inflation that averages 2% over time, as opposed to targeting steady price growth at a 2% rate. The change signals the central bank will allow inflation to run above the 2% threshold for some time as the country recovers. Powell has said that the low-inflation environment of the late 2010s suggest the Fed can run the economy hot in hopes of reaching maximum employment.

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US futures soar and global stocks climb as investors cheer huge Apple and Facebook earnings

Apple CEO Tim Cook
Apple CEO Tim Cook.

US stock futures climbed sharply on Thursday in the wake of blowout earnings from Apple and Facebook, and after the Federal Reserve promised to keep up its support for the economy.

Nasdaq 100 futures jumped 1%, boosted by the big-tech earnings. S&P 500 futures rose 0.67% while Dow Jones futures climbed 0.43% as investors also mulled a major speech by President Joe Biden on his taxing and spending plans.

Booming iPhone sales helped Apple’s profit more than double and revenue soar in its latest fiscal quarter, year on year. The company’s shares rose 2.82% in pre-market trading after it announced a $90 billion share buyback program.

Facebook’s revenue also jumped, helped by soaring advertising prices. Its shares rallied 7.04% in pre-market.

The Federal Reserve’s latest interest rate decision added to the good mood in the market. The Federal Open Market Committee held interest rates near zero and pledged to keep buying bonds at a pace of $120 billion a month.

And Fed Chair Jerome Powell signaled that the central bank would keep up its support for the economy, despite the outlook brightening, saying: “We’re a long way from our goals.”

The dollar index fell after the decision and press conference, standing at 90.65 on Thursday, down more than 2.7% in April.

In the bond market, the yield on the key US 10-year Treasury note fell on Wednesday, but picked up again on Thursday morning to stand at 1.647%. Yields move inversely to prices.

“The Fed maintained their very dovish policy stance overnight despite acknowledging the robust US economic recovery at the start of this year,” Lee Hardman, currency analyst at Japanese bank MUFG, said.

“The lack of any hawkish policy shift last night from the Fed has encouraged an extension of the bearish US dollar trend that has been in place this month.” Low US interest rates tend to make dollar-denominated investments less attractive, which weighs on the currency.

Asian and European stocks climbed on Thursday, supported by the Fed and a raft of strong earnings. China’s CSI 300 rose 0.88%, while Japanese markets were closed for a public holiday.

Europe’s Stoxx 600 was up 0.49% in early trading, boosted by strong earnings from consumer goods company Unilever and oil major Shell.

Oil prices – which boosted Shell’s results – rose for the third day on Thursday. The improving outlook in many of the world’s biggest economies supported the market, despite the raging pandemic in India.

Brent crude oil climbed 0.58% to $67.16 a barrel, while WTI crude climbed 0.58% to $64.23 a barrel.

Investors were also weighing President Joe Biden’s Wednesday night speech to Congress, in which he laid out his plan to boost spending and raise taxes to support the US economy.

Biden proposed higher taxes on companies and the rich to pay for a big expansion of the social safety net. He said: “It’s time for corporate America and the wealthiest 1 per cent of Americans to pay their fair share. Just pay their fair share.”

Stocks initially fell when Biden’s plan to raise taxes on investments were first reported last week, but have since recovered strongly.

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The Fed is watching housing ‘carefully’ and hopes builders catch up to the red-hot market, Chair Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The Fed is “carefully” watching the housing market as huge demand sends prices soaring, Chair Jerome Powell said.
  • The central bank doesn’t see “the kind of financial stability concerns” that fueled the 2008 crash, he added.
  • Powell said he hopes homebuilders react “and come up with more supply,” which would also boost job growth.
  • See more stories on Insider’s business page.

The housing market boom has caught the Federal Reserve’s attention.

By several measures, the US housing market is running at its hottest level since the mid-2000s bubble that nearly crashed the global financial system. Prices have surged at decade-high rates, and homebuying, while slowed from recent highs, remains elevated. What began as a pandemic-era rally has since raised concerns that soaring prices are eroding home affordability just as the US economy rebounds.

The market frenzy is being “carefully” monitored by the Fed, but there’s little reason to fear another nationwide crash, Fed Chair Jerome Powell said in a Wednesday press conference. The subprime lending and speculative purchasing that fueled the 2008 meltdown aren’t nearly as abundant this time around, making for a “very different housing market” than that seen a little over a decade ago, he added.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Powell said. “We don’t see bad loans and unsustainable prices and that kind of thing.”

Much of the boom is driven by demand significantly outstripping supply. Home inventory sits near record lows, and while housing starts recently leaped to the fastest rate since 2006, it will take some time for construction to equate to new supply.

Powell acknowledged the imbalance and highlighted that a bounceback in supply could also serve the labor market’s recovery.

“My hope would be that over time, housing builders can react to this demand and come up with more supply, and workers will come back to work in that industry,” he said.

Some of the current market strains can be tied directly to fallout from the 2008 crisis. The intense homebuying activity seen throughout the 2000s drove a boom in new construction. The rally lasted for years until dubious lending brought the market toppling down. Construction came to an almost-complete stop, and while it trended higher through the 2010s, it failed to retake levels seen during the prior decade’s surge. That building deficit is just now coming back to bite prospective homebuyers.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider’s Hillary Hoffower.

While the Federal Reserve has little direct influence on the housing market, the central bank’s promise to hold interest rates near zero for the foreseeable future places downward pressure on mortgage rates. Lower borrowing costs help lower the barrier to entry for potential buyers, as would the previewed jump in supply.

Signs point to demand holding up even as supply recovers. Nearly 9% of Americans plan to buy a home in the next six months, according to The Conference Board’s latest consumer confidence report. That’s the largest share since 1987.

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US stocks slip after the Fed maintains its support of the economy

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell speaks to reporters after the Federal Reserve cut interest rates in an emergency move designed to shield the world's largest economy from the impact of the coronavirus, during a news conference in Washington, U.S., March 3, 2020. REUTERS/Kevin Lamarque
  • US stocks were lower Wednesday after the Federal Reserve maintained its support for the economy.
  • Policymakers held the Fed’s benchmark interest rate near zero and maintained the pace of asset purchases of at least $120 billion per month.
  • Google’s parent Alphabet hit a record intraday high after the tech stalwart crushed earnings.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks closed lower on Wednesday after the Federal Reserve maintained its support for the economy.

The Federal Open Market Committee concluded its two-day April meeting, announcing it would maintain its ultra-accommodative policy stance. The US central bank held the benchmark interest rate near zero and maintained the pace of asset purchases of at least $120 billion per month.

Chairman Jerome Powell also said that widespread vaccination and “strong policy support” have fueled a considerable pick-up in the pace of economic recovery.

“This new-found patience from the market, even in the face of resoundingly strong economic data and rising inflationary pressures is perhaps testament to the Fed’s credibility and the success of Powell’s communication,” said Seema Shah, Principal Global Investors chief strategist. “Investors appear to have accepted – for now, at least – that it is too soon for the Fed to consider tapering and a more persistent overshooting of the 2% inflation target is required before the central bank will even entertain discussion of rate hikes.

She added however, that at some point over the coming months as inflation picks up, the Fed will need to provide “incremental signals” on when the policy unwind will begin.

Here’s where US indexes stood at the 4 p.m. ET close on Wednesday:

Google’s Alphabet Inc. hit a record intraday high after the company posted earnings that beat Wall Street expectations and showed a surge in ad sales. Meanwhile, Microsoft fell to a three-week low after its earnings disappointed. After the closing bell today, Facebook and Apple report earnings. Find a full calendar of this week’s earnings here.

The US Securities and Exchange Commission is considering new guidance to curb growth projections made by listed SPAC, according to Reuters. The reported crackdown comes as the blank-check frenzy that started 2021 cools off. Analysts from JPMorgan today said that the SPAC boom has peaked, and the decline in SPACs since February has been driven by a slowing of retail money flow into stocks.

Ether hit a new all-time high today of $2,740.17, per CoinDesk data. While ether remains far behind bitcoin’s $1 trillion market value, some experts predict that it may not be long before the runner-up dethrones bitcoin as the world’s biggest cryptocurrency.

West Texas Intermediate crude was up 1.6%, to $63.92 per barrel. Brent crude, oil’s international benchmark, rose 1.3%, to $67.29 per barrel.

Gold climbed as much as 0.1%, to $1,780.40 per ounce.

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Market prophet Gary Shilling predicts stocks and cryptocurrencies will crash, blasts the Fed, and warns against speculating in a new interview. Here are the 10 best quotes.

gary shilling
Gary Shilling.

  • Gary Shilling said stocks and cryptocurrencies are overheated and bound to crash.
  • The veteran forecaster blamed stimulus measures for ballooning asset prices.
  • Shilling dismissed inflation fears and advised investors to resist speculating.
  • See more stories on Insider’s business page.

Gary Shilling warned of rampant speculation in stocks and cryptocurrencies, and predicted a painful end for those involved, in a RealVision interview released this week.

The president of A. Gary Shilling & Co – who has called several previous crashes – also accused the Federal Reserve and Treasury of pumping up asset prices, dismissed fears of higher inflation, and urged investors to resist joining the buying frenzy.

Here are Shilling’s 10 best quotes, lightly edited and condensed for clarity:

1. “The consensus view is that the economy is going to open very rapidly, inflation is going to come roaring back, and interest rates are going through the roof. That is way overdone. We are in a low-inflation, if not deflationary era.” – highlighting that China and other countries produce more than they consume, fueling a global supply glut that depresses prices.

2. “The money pumped out by the Fed and all the fiscal stimulus hasn’t gone into spending, it’s gone into savings and asset inflation. It’s really responsible for things like dogecoin and bitcoin and other cryptocurrencies, and all these speculations. It’s pushed stocks to unbelievable highs in relation to earnings, in relation to anything else, and made them very overpriced. Now, that doesn’t mean that I want to be short stocks right now, because with speculations, you never know how far they’re going to go. They leave the realm of any fundamentals, they’re off in the wild blue yonder.”

3. “There’s too much money floating around, and people don’t know what else to do with it. The Federal Reserve can’t be oblivious to what they’re doing. I know that they’re very honest public servants, but you’d almost think that these guys have a vested interest in pushing up stocks and fostering speculation. At some point, you would think that they’ve got to exercise more caution.”

4. “Until somebody blows the whistle, and that normally is the Fed, there’s no real end to this speculative climate. It just gets more and more extreme. It’s like the sock-puppet thing we saw back in the dot-com era. Absolutely no logic to the thing, but everybody’s having a wonderful time as long as it lasts.”

5. “If things start to unfold as we expect, and we get a big sell-off in equities that takes a lot of these speculations with it, we’ll have an opportunity to make some serious money.”

6. “When we got to the point that the only things that people wanted were gimmick cameras (Polaroid), motorhomes (Winnebago), and amusement parks (Disney), those are the outward flourishes, not the guts of the economy. People were rejecting the basic economy, saying there’s something wrong, or they’re into speculation. There are many similarities between then and now.” – comparing the current excitement around hot stocks with the hype that surrounded the “Nifty Fifty” stocks in the 1960s and 1970s.

7. “How could this end? One possibility is that we wake up tomorrow and find some major financial institution has bit the dust. We had this recently with Archegos, but we can have something like that on a larger scale that just touches off the collapse. You go back to the Tulipmania in Holland in the 1600s, the South Sea Bubble in England in the 1700s – they got to the point where there was a tiny trigger and wham, they all collapsed.”

8. “I’m not making any firm prediction as to when this thing is going to collapse. Speculations outrun any logic and that’s probably going to be true of this one. But at some point, boy, there’s going to be a lot of blood on the floor.”

9. “Back in the day, we all wore suits. I would buy two or three new suits a year, not because they went out of style, but because I wore them out. If that’s what commuting does to the suit, what’s it done to the guy inside the suit?” – predicting the pandemic will permanently alter work habits because many people have realized they dislike commuting.

10. “We had a wake-up call with the pandemic. It’s time to save money, to be cautious, and certainly investment-wise, to avoid speculation. It’s very hard when everybody is making money and you feel, ‘Oh, am I missing out? There’s this garage mechanic, who is no longer fixing cars because he’s making so much money in GameStop. I’m a stupid idiot, why aren’t I involved?’ Well, there are times where you really have to just pluck up your courage and say, ‘No, I don’t want to be involved.'”

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The prices of corn, cotton, and wheat have surged more than 50% over the past year – and it’s driving up the cost of everything from Coca-Cola to diapers

2021 03 05T123827Z_3_LYNXMPEH240MQ_RTROPTP_4_GLOBAL MARKETS.JPG
  • Futures contracts for corn are up 96% over the past year. Cotton and wheat have jumped 54% and 50%.
  • Consumer-staple giants like Kimberly-Clark, Procter & Gamble, and General Mills are raising prices.
  • The Fed said on April 8 it wouldn’t allow a “substantial overshoot” of its inflation targets.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Commodity prices have soared over the past 12 months, and consumers are about to start feeling the effects.

Corn futures contracts are up 96% over the past year, while cotton and wheat futures contracts are up 54% and 50%, respectively.

Lumber is also on a tear, with prices rising over 265% in the past year to a record high of $1,326 per thousand board feet on Monday.

The meteoric rise for commodities is beginning to have an effect on consumer-staple companies. That’s leading them to pass rising costs on to consumers.

Coca-Cola CEO James Quincey told CNBC on Monday that his company would raise prices for its products because of the increasing costs associated with higher commodity prices.

Leaders in the consumer-staple sector, including Kimberly-Clark, J. M. Smucker, Procter & Gamble, and General Mills, have also said they will be raising prices because of increasing costs for raw goods.

Prices on most of Kimberly-Clark’s North American products are set to jump by mid-to-high single digits by the end of June, according to CNBC reports.

J. M. Smucker raised its peanut-butter prices in August. CEO Mark Smucker told analysts in November that “it was very clear that we were experiencing cost pressure.”

General Mills CEO Jeff Harmening told investors on a March 24 earnings call that his company would also raise prices in the coming months amid inflation pressures.

“So I would start by saying that inflation is very broad-based, and it’s actually global. So we are seeing it across the globe, and it’s broad-based across commodities, across logistics, across things like aluminum and steel,” Harmening said.

The CEO added that his company would “use all of the tools” at its disposal, including and “price and mix,” to offset costs.

Procter & Gamble announced on Tuesday in its fiscal third-quarter results that it planned to hike prices for baby care, feminine care, and adult-incontinence products in September to respond to higher commodity costs.

The rising price of commodities, and now of consumer goods, has some experts and US senators worried about inflation.

Sen. Rick Scott wrote a letter to the Federal Reserve Chair Jerome Powell in March raising concerns about rising inflation and the central bank’s bond-buying program.

Powell has said he plans to maintain “easy-money” policies despite rising inflation over the past few months, but Reuters reported Tuesday that Powell wrote in a letter to Scott that he wouldn’t allow a “substantial overshoot” of inflation targets.

“We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period,” Powell said in a five-page response to Scott’s March 24 letter.

If Powell does decide to raise interest rates to curb inflation, some experts say the markets may not be ready for the results.

Mohamed El-Erian, the president of Queens’ College, Cambridge, and chief economic adviser at Allianz, told Bloomberg in an April 9 interview that the US economy was unprepared for an interest-rate shock.

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