The Market Listens
Let us start by focusing on something that came from the Federal Reserve last week that could impact the market for a few months going forward. Last week, Fed Chairman Powell Made a very important statement by reconfirming that the Fed would not tighten policy until low-income workers were covered. He also said that the Fed is committed to allowing a hot labor market to run until it pulls in the low and moderate-income workers. They are still out of work because of the COVID pandemic. Right now, we are a long way away from the hot labor market as we are still 10 million jobs short of where we were before COVID. This all means that the Fed will continue to buy $120 billion bonds a month for an extended period. We have seen high wage jobs, those with annual incomes above $85,000, return to pre-COVID levels but the low wage jobs, the ones with an annual income below $30,000, are starting to see losses again. This impacts you, the client because more liquidity and low rates will continue to be a tailwind for a market that has run up the past few weeks. This is the reason that it is important to know, when the Fed talks, the market listens. That is why we follow and talk about the Federal Reserve and its actions as much as we do.
Deteriorating Labor Market
Over the last year, we’ve talked a lot about how wages have gone up while unemployment has spiked. A lot of that is because of the Federal Government stimulus. Also, savings have doubled. What we’re seeing right now is a re-introduction of a higher unemployment rate in a deteriorating labor market, late in the cycle. Last week, 793,000 people applied for unemployment for the first time, which was higher than the 760,000 that was forecasted. That leaves 4.54 million people currently on unemployment. The U.S. labor force participation rate is all the way down at 61.4%. That is a really low percentage of people who are working, that can work. People are leaving the labor force at a time where we’re seeing the cost of food hitting its highest level since 2014. What’ll likely happen is, as people are needing to spend more money since we’re seeing costs go up such as energy and now food, that higher savings rate is likely going to be spent down. That money would come out of financial assets and could be negative on the markets. The Fed continuing to be supportive could fill the gap of savings going down as the consumers deal with higher prices. It’s very important to the market for that $120 billion from the Fed to continue. It’s needed to fill the hole that possibly could be created by the consumers that are continuing to lose jobs at a time when prices are going up. The Fed is really the buyer of last resort and that is an extremely important role in the current market environment.
Long-Term Technical Analysis
The fundamentals are important along with the Fed and how they both impact the market and consumers. As you know, we pay close attention to the S&P 500. Usually, we talk about the short-term to intermediate-term when we give support and resistance levels. Today, we are focusing on the long-term levels. What’s our long-term support? For the S&P 500, we’re looking at 3,690. We also are looking at the 200-day moving average and right now that is sitting around 3,391. While that may seem a little low, we must factor in that it includes a COVID environment. We’ll start to see that push up a little bit if the market can maintain itself. That is also going to give us a good indication of how the momentum is going into the rest of the year. It’s important to look at where we come from and where we’re starting to go. There is no guarantee, but it gives us an indication and helps us navigate all the variables.
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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