Commodity Prices
We’re close to finishing what’s been the worst start to the year in history, and we are analyzing what could drive the market higher in the second half. We shared a few weeks ago that, historically, the second half of the year has performed well coming off a bad first start to the year. We like what history says there but obviously there are no guarantees. However, the second half the year will be heavily dependent on the Federal Reserve’s ability to fight inflation without severely impacting the economy. One positive development that we’re seeing this week and last week, is falling commodity prices. You can see on a chart shown in this episode, that copper, or what some economists refer to as Dr. Copper for its ability to forecast the economy, is down 13% since June 2nd and has broken below its key support level. We will be continuing to watch copper very carefully. Another thing we will be focusing on is crude oil. As you can see in the chart shown in this episode, after breaking over $150 a barrel, oil has rolled over sharply in recent days. It looks like we could continue to see downward pressure heading into the July 4th holiday as people travel. Lastly, we are looking at wheat prices, as we all know that food prices have been up. Wheat prices have closely been watched since the beginning of the Ukraine and Russia crisis. Those prices were already up 70% in two years prior to the conflict, and spiked an additional 60% when the conflict started. While the conflict sadly remains unresolved, wheat prices are on the verge of breaking down to the lowest level since the conflict started. We are following the fall of commodities closely this week as the Fed will be seeing this and hopefully recognizing that inflation is starting to reverse down. The market will most likely cheer if inflation continues to reverse downward. Commodities coming down is a huge first step in fighting inflation.
Federal Gas Tax
The federal gas tax holiday has been in the news lately. There have been supporters for lower gas prices but there have also been some that are pushing against it. The tax comes out to being around $0.18. Researchers have estimated that average consumer savings will be around $30 a month. The people that are pushing back on this are saying that it’s not enough. There are also some people saying that they think it could increase demand and extend inflation. Those are all valid push backs but one concern that we don’t find valid, is people saying that the cut is just going to flow through to producers and consumers are not going to see the benefit. As you can see in a chart shown in this episode, some states have already cut the gas tax and have been doing so throughout this year. Maryland, Georgia, and Connecticut are three states that have participated in this. In Maryland, 72% of their tax cut went to the consumer’s benefit, 65% in George, and 71% in Connecticut. The consumer is seeing the benefit and it’s not just going into the producer’s pockets. Another chart shown in this episode shows what the prices are now compared to what it would be without the tax. This estimate shows that this would be helpful to the consumer, to some degree, despite what pushbacks may be being said. It’s going to be interesting to see which way we go with that.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here
Ty Miller
Associate Vice President
Email Ty Miller here
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.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
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