A couple of months ago we did a vlog on the two ways that the Federal Reserve really controls the economy on the monetary policy side. One way they control the economy is interest rates which is the area people are most familiar with. The other is the size of the balance sheets. If you go back a couple of months to that vlog, you can get more information and see that what we discussed then is being called to action this week. Wednesday, they’re going to be talking about both the interest rate and probably reducing or slowing down the balance sheet decrease. This is what we are talking about when we say, “follow the breadcrumbs” and is ultimately why we do these vlogs so that you can get an idea of where things are going.
The Impacts of Nature
The upper Midwest has had record flooding over the last week that we don’t think a lot of people have focused on. The reason we watch things like the flooding for portfolio performance is that agricultural land affects food prices, which goes into consumer cost, which has a huge market impact. During this time, you might see prices go up, inflation could increase, and interest rates might go up as well. All these things are interconnected and typically take months and months to play out.
Too Strong Too Soon?
We’ve had a few client questions recently about the market coming back too strong too quick after all that’s been going on. This year the market had the best beginning of the year since 1991, which is a good thing. We want to point out a couple of things about the current market. One is that the Fed meets this week and is expected to keep rates unchanged. The second is that the ten-year rates are stuck around 2.6%, which is a pretty good environment for stocks. Third, central banks around the world are doing all they can to boost their economy. Lastly, we have recently had some economic reports come out that were less than stellar and one of those was the jobs number. We talked about, in last week’s vlog, that the wage growth was 3%. That’s a great number for consumer spending, which is very important. The U.S. currently has one million more job openings than unemployment. So, in short, our answer would be no the market hasn’t come back too strong too quick after selling off so bad in December. We really like the environment that we are in.
We’ve seen the FED stop the market in its tracks. The beginning of last year we had a strong January and the FED came out and completely kyboshed that saying there were inflation fears and as a result, we rode off into one of the worst Februarys we’ve had in a long time. So, the FED announcing this week what they’re going to do could impact the market but we’re also looking at, from a price standpoint or technical standpoint, is the market in a stronger point or not. Often you see a bounce in the market. The reason being is that the market won’t move in one direction forever so what you’re looking for is where will it stop when it turns over. Another thing to think about is if we don’t get these support zones, the market could fall fast. Right now, the S&P 500 is at 2822. In a low news week, if we can hold above that 2815 area at the least then that could create another support zone. What that means is that if we do fall off the market you typically have support somewhere and won’t fall through completely. If we can create these support zones it really helps when we do have a bad news event. It helps the market stay at higher highs as opposed to going all the way back down to January lows. That’s the important thing we are watching this week. If this market stays above that 2800-2815 area, that would be very good news.
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.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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