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The End of Q1

This last week of the quarter finished mostly flat with a bit of profit taking on the last day.  March proved the most volatile month in quite some time, recovering a significant portion of the losses experienced during the first half of the month.  Investors remain optimistic over the prospects of a potential peace deal as Russia and Ukraine continue negotiating in Turkey.  In the weeks ahead, investors will return focus to corporate earnings as they begin releasing earnings reports which will undoubtedly include some mention of inflation pressures.  We look forward to what these companies say, as it should provide a guidepost for what we could expect through the remainder of the year.

Starting with the good news, the economy continues to add jobs at a healthy pace.  Today we learned 431,000 jobs were added in March which brought the unemployment rate down from 3.8% to 3.6%.  At its low, we saw the unemployment rate hit 3.5% in February 2020 which had been on the decline since October 2009.  Despite concerns about inflation and the Russia-Ukraine war, American companies are still hiring at full throttle, while more people are returning to the labor force.  It seems the “great resignation” may be coming to an end.  However, to underline how big the shortfall is, the current job openings topped 11.266 million in February which is roughly 1.7 jobs for every unemployed person.  Let’s hope people continue to return to work.

In economic news, the yield curve between the 2-year and 10-year Treasury notes inverted this week.  Inversion describes a situation where the longer-duration bond has a lower yield than the shorter-duration one.  This represents the opposite of what occurs naturally when investors ask for additional return when locking up their cash for a longer period.  Historical precedent indicates that persistent inversions have been associated with eventual economic downturn.  This situation took place in 2006-2007, when inversion presaged the financial crisis of 2008-2009.  The circumstances also took place in 2000, pointing the way to the 2001-2003 tech bubble meltdown.  Historically, a recession has not happened without an inversion first, however the timing could take up to two years.  While this is something worth watching, it is just one of many indicators we continue to follow.

Also, this week President Biden unveiled a new billionaire and corporate minimum tax rate.  On Monday, he laid out a $5.9T budget plan for the fiscal year, including a 20% minimum tax rate on households worth more than $100M, or the top 0.01% of Americans.  The corporate tax rate will increase from the current 21% to 28%. In 2020, there were fifty Fortune 500 companies that made profits over $50B, but didn’t pay anything in federal taxes.  Most controversially, the new proposal would expand the tax code’s definition of “income” by taxing unrealized capital gains.  While this is the latest in a long line of tax and spend proposals, it is unlikely to pass in its current form.  And if history is any indication, the can will be kicked down the road in perpetuity.

In company news, Carl Icahn is at it again.  After having attacked McDonalds over its treatment of pigs, he is now going after Kroger.  It seems he has a real soft spot for pigs.  Don’t anyone tell him where bacon comes from.  It was announced this week that the CEO of Intel earned $178.6 million in 2021 drawing the ire of both Wall Street and perhaps some of its employees.  While I thought compensation had been tied to performance in recent years, it is worth noting the stock was up 6% in 2021 versus the S&P 500 which rose 28.7% and the technology sector which gained 35.4%.  Makes one scratch one’s head.  And lastly, if you are a fan of Chipotle and its food, hold onto your wallet as the company announced it is raising prices again.  It seems food inflation knows no bounds.

In closing, I’d be remiss if I didn’t mention that today is April Fool’s day.  Some companies have outdone themselves this year with innovative products which we didn’t know we needed in our lives.  For example, the toy company Little Tikes has introduced My First Cubicle for children.  For the aspirational child (or parent) you too can set your child up for days of meetings and conference calls.  If that’s not to your liking, how about the mash up between Hellman’s mayonnaise and Butterfinger?  Honestly, this sounds more like a cry for help.  Better yet is the 3D printer company that has innovated a new printer.  In simplifying, it has undertaken to remove a dimension, creating the first 2D printer.  And last but not least, Aldi’s (the supermarket chain) has put out a dating app called Findr, which lets you swipe right on products in the grocery store and find your match via who likes the same foods as you.  This last one might not be the worst idea.  Now you know.

Bruce J. Mason, MBA