We are getting a lot of questions from clients asking: “Is this market going to overheat?” We see a possible bigger risk stemming from the Fed overreacting to the information rather than the market overheating. Employment is doing well but inflation seems to be a little bit more dogmatic in moving up. Our Federal Reserve has a two issue mandate looking at both those topics where many central banks around the world don’t. We see the issue being more connected with the Fed overreacting and in turn raising interest rates higher and faster.
We have talked about confidence all year long. Last week we got some news tied to confidence that gives us some more confirmation. NFIB (National Federation of Independent Business), in its 44th year of existence, said that right now small business confidence is the second highest its ever been. This is basically showing that small businesses are ready to lead the economy going into next year. What’s important is it’s not just small business either. It is also including manufacturers, home builders and consumers. In fact, this level of confidence hasn’t been seen since 1983 when GDP was at 5% and 6%.
Oil prices have stayed around the high 50’s range. The reason this is important is because, as we have discussed all year long, the swing producer is the U.S. shale producers. What we have seen over the last few years is that when prices hit a certain point we increase production and prices come back down. What we are seeing now is there is a bottleneck reaction with shale producers, in that there are not enough employees for them to increase production. So, this may put a cap on inflation but also keeps profitability of U.S. producers high. That profitability can cause a rippling effect in that it could increase confidence, wages and hiring.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
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