😨 The economy's too strong

The West is firing on some cylinders | Well howdy, Deere |

Hi Reader, here's what you need to know for May 24th in 3:04 minutes.

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Today's big stories

  1. Economic activity is on the up around the world, but it might be a case of too much, too soon
  2. If you’re looking for stocks that are both inflation-proof and cheap, there’s one group that fits the bill exactly – Read Now
  3. Agricultural equipment-maker Deere posted earnings that surged past analysts’ expectations

Hired Muscles

Hired Muscles

What’s Going On Here?

Crack out the unitard, because fresh data out Friday showed the global economy working up a sweat in May as activity levels jacked ever higher.

What Does This Mean?

Monthly business activity surveys ask managers all over the world just how busy they’ve been compared to the month before, giving observers a near real-time picture of economic performance. And with lockdowns easing, it seems everyone’s been rushed off their feet: manufacturing and services activity in both the US and UK not only rose compared to April, but they hit their highest combined level in any month ever (tweet this). The eurozone wasn’t far behind, with overall activity increasing in May. And while the region’s manufacturing industry remains somewhat hamstrung by supply and labor bottlenecks, the easing of pandemic-related restrictions gave its services industries a major boost.

Why Should I Care?

The bigger picture: The economy’s on steroids.
Manufacturers’ costs have risen rapidly lately, partly because of shortages of things like microchips, and partly because hiring difficulties could be forcing firms to offer higher wages. That might sound great, but it raises two serious risks: lower company profits (and potentially share prices) and a drop in economic activity. Central banks have their ways of keeping a lid on those rising costs, but the mere whisper of interest rate hikes anytime soon would likely send investors scurrying away from the stock market.

For markets: European stocks or American stonks?
Big investors seem to think European stocks are the place to be right now: they’re set up to outperform their US equivalents thanks to cheaper valuations and stronger earnings growth. But in the long run, analysts agree it’s tough to ignore Big Tech stocks: consistently high growth from the likes of Apple, Facebook, and Amazon just isn’t available in Europe.

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2. Analyst Take

This Group Of Stocks Is In A Perfect Position

What’s The Opportunity On Here?

Between fears of inflation and expensive stock valuations, investors are looking for an investment that’ll protect them from sudden price rises and something that comes cheap.

And there’s one group of stocks that fits the bill perfectly.

See, when inflation goes above 5%, it’s these stocks – much more than high-profile tech stocks, say, or even corporate bonds – that offer the best chance of inflation-beating returns.

And here’s the thing: a lot of investors don’t realize how cheap they are, given how expensive their price-to-earnings ratio makes them look.

So that’s today’s Insight: which category of stocks are cheap and inflation-proof, and how best to invest in them.

Read or listen to the Insight here

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Aww, Shucks

Aww, Shucks

What’s Going On Here?

Deere posted better-than-expected earnings late last week, and ain’t y’all investors too kind, pushin’ the farm equipment-maker’s li’l ol’ share price higher.

What Does This Mean?

Deere’s worth paying attention to because it’s an economic bellwether, meaning demand for its products gives a good indication of how busy US farmers are keeping. So it’s a strong sign that the company’s profit surged 169% from the same time last year, and that it upped its expectations for the rest of 2021 for the second quarter in a row. That’s partly thanks to a recovering global economy in need of food production and construction equipment, and partly thanks to a surge in the prices of grains, which has given farmers more money to spend on new toys.

Why Should I Care?

For markets: All the demand, none of the supply.
Deere did warn that it might struggle to secure necessary parts in the months ahead, and it’s not alone: manufacturers across a host of different industries are running out of the steel, plastics, and rubber they need for their products, as the economy picks up again and demand overwhelms supply. Microchips too: Cisco’s shares dropped last week when it warned its profit might be lower than analysts were expecting, with the lack of semiconductors pushing up prices of what’s available.

The bigger picture: Deere ain’t foolin’ anyone. 
Deere might masquerade as a folksy, salt-of-the-earth type, but it’s actually an uncanny hybrid of industrial and tech company – with one investment manager even including it in their autonomous technology and robotics ETF. That’s because the company’s investing big into “precision farming” technology – from crop-surveying drones to soil-analyzing artificial intelligence – that’ll allow farmers to grow more with less water, fertilizer, and land. That’s a market with big potential: Morgan Stanley reckons precision farming could rake in $17 billion of revenue in 2030 – up from $5 billion in 2019.

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💬 Quote of the day

“What is the use of a house if you haven’t got a tolerable planet to put it on?”

– Henry David Thoreau (an American naturalist, essayist, poet, and philosopher)
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🤭 Our small talk needs work

Inflation this, inflation that: it’s all anyone’s chatting about these days. But while it may not be as exciting as crypto the moon, it really is putting your returns at risk. So if you’re a shrewd investor (and let’s face it, you are), you’ll probably want to head down to our How To Protect Yourself From Rising Prices event with the deputy chief economist from Aletheia Capital.

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