The Fed, as expected, raised interest rates by 50 basis points. One of the things the market took as a positive is that the Fed took the 75 basis point rate hike that they were planning for June, off the table. The market rallied on that note, but then on Friday, gave a lot of that back due to a fear that the Fed may be behind the curve and that Jerome Powell is not seeing the level of inflation that’s truly in the economy. However, there are some positive numbers that may indicate that we are starting to see a turn. For months, we have been showing goods versus services spending in the US economy. The charts shown in this episode are very important because they show that goods, as we’ve seen, are very inflationary. One of the things we’ve been talking about is if demand will fall to meet supply, which will show a slowing economy, or if supply will rise to meet demand. To dig down under inflation you really want to look at the details. You can see on a chart shown in this episode, that spending on goods is starting to come down but overall spending isn’t dropping. That shows that spending on services is catching up. You can see on another chart shown that we have seen inflation on goods start to peak and come down. That is a positive but inflation on goods is something the Fed has a hard time controlling. The price of lumber is starting to fall along with the price of used cars, the price of air freight, as well as other things. These are all areas that the Fed really can’t control on a day-to-day basis that we’re starting to see potentially peak. This may be why the Fed took the 75 basis points off the table for the next meeting. The supply may be coming up to meet demand instead of having to force demand down to meet where current supply is. When it comes to services, the way services are supplied, is jobs.
The recent productivity report was down 7.5% on an annual rate, which was a little worse than expected. The main culprit was compensation in unit labor costs, which was all inflation related. Compensation was down 5.5% but wages were still up. It’s not that people are getting paid less, they are just getting paid less on a real basis because inflation is so hot and unit labor costs, of course, are directly correlated to inflation. One way that we can help fix this is by creating more jobs in the important sectors to get the supply chain going. Last week, we got the jobs report that showed 428,000 new jobs in April. That was way ahead of the expectation of 380,000. More importantly, jobs are starting to come back into those industries that we need such as transportation, education, health services, leisure, and hospitality. We’re still below where we need to be and where we were before COVID. We still have 11 million jobs out there that need to be filled but the important part is we’re starting to see progress in those departments and hopefully we can continue to do so. The consumer is alive and well and if they start to help those industries hire more people by traveling, booking hotels, taking cruises, reserving flights, and all those things, those kinds of things can help bring inflation back under control. So, to each of you out there watching us, please take a trip, go to a restaurant, and get out to enjoy the summer months.
While we are focused on your portfolios and your Financial Blueprint, we are watching the volatility in this market as this data comes in. We saw a lot of volatility in the markets last week, with the S&P 500 closing Friday priced at 4,123. That gives us a new short-term resistance level price of 4,150 and a new support level of 4,090. It is also important to look at the year-to-date moving day average of the S&P 500, which is currently priced at 4,430. This could create a new resistance level for the intermediate term for the rest of the year. It’s also important to look at the overall 11 sectors to see where we are getting the momentum from in the markets. This is something we will continue to look at along with our indicators. Leisure and entertainment are sectors we will be keeping a close eye on, as we see those sectors continue to grow. There are a lot of moving parts, but we believe we are seeing a lot of positives behind the scenes and we’re going to keep you updated through the month of May and on into the summer where we hope that everyone starts to travel. We hope the service industry really starts to grow and we think we could start seeing some of the complications, supply chain issues, and other problems start to correct themselves.
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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