Perspectives: Cost Pressures, Supply Chain Shortages and Interest Rate Hikes

Dear Friends,

In light of the recent new headlines and questions surrounding the volatility of the markets and more importantly, the companies that make up our stock exchanges, here is some context and color to what we believe is driving the up and down nature of the market over the last few weeks.

We believe three factors are at play:

Rising cost pressures from freight and labor: For FedEx, higher oil and labor prices have driven shipping costs, causing management to lower profit guidance by roughly 5%. The company’s share price has fallen accordingly but we’re now seeing it start to stabilize.
Supply chain shortages: Nike felt the impact of factory closures in Vietnam due to the Delta variant, leading the company to fear that it won’t have enough product to sell and shortages could cause price increases. News sources have reported some Vietnam factories have started to open and supply should be on the upswing.
Potential Federal Reserve interest rate hikes and their impact on U.S. Treasuries: The recent increase in the 10-Year U.S. Treasury yield is one of the factors affecting the valuation multiples of high-growth technology and healthcare companies. These sell-offs can sometimes create opportunities to add to strong companies at lower share prices.

These factors may impact near-term company profits, causing share prices to rise and fall, but the reality is they’re likely to influence all asset classes, including fixed income and cash portfolios. We take a long-term mindset to investing and are prioritizing companies and themes we want to own when these pressures alleviate next year and beyond.

Despite all of this, U.S. consumers generally have strong cash positions and retail spend has also remained strong. With wages increasing, we are optimistic that the U.S. consumer spending will remain healthy into 2022.

We hope this provides some clarity on recent headlines.

All the best,

TBG