Fundamentals vs. Technicals
On a chart from our research partners at Strategas shown in this episode, you will see the S&P 500 and what it looked like in the middle of last week when we got the Fed’s decision, which caused the market to sell off pretty quickly. It appears as though that created what is called a ceiling where there’s resistance from the market going any higher and that was at a price of around 3,900. The selloff stopped pretty quickly at a price of 3,700, and that appears to be the support level. The good news is now that we have those numbers and what appear to be defined ranges, how do we get above that resistance of 3,900? We need catalysts. This is where fundamentals outweigh technicals. If we can have some fundamental catalysts, that’ll push us beyond the 3,900. Potentially, the market was looking for more of a dovish Fed last week, but this week we’ve got two very large catalysts. We have the election tomorrow and the CPI report that will come out on Thursday. That report will give us inflation data and if that data comes out better than expected. Current expectations are for 7.9%, which is lower than last month’s 8.2%. We might get to see those numbers continue to come down. If the fundamental data points hit in a positive manner, that should be enough momentum to push us through that resistance of 3,900. The good news is that once you’re through it, if you hold it, that then becomes a new floor and you can bounce off a much higher base, which is what we really want to see.
As we head into an important week for the market, with all eyes on the midterm election, we wanted to take a quick look back at what’s been a historical year for the market. You will see in a chart shown in this vlog that 2022 has been one of the worst years. The right-hand side of the chart shows how both stocks and bonds have struggled big time. You can see out of all the years on this chart, even years like 2008 and 2009, as tough as those years were, they don’t compare to this year. We show this chart to say that it’s been a year where active management by our team has been crucial, not only in stocks but with fixed income and bonds as well. We also want to point out two positive developments heading into the midterms. First, as you can see in the chart shown in this episode, the average stock is breaking out compared to the largest few individual stocks, which is kind of a reversal for previous years. This is showing that there is good momentum starting to build in the overall market. Also, another positive development that we’re watching is we’re seeing money coming off the sidelines and we’re seeing inflows into exchange trading funds. Having a seven-month high, you can see on the bottom of the chart that the average 12 monthly ETF inflow is 40 billion. The inflow of 63 billion in October is a positive development. It’s been a uniquely tough year, but active management has been essential and we like the positive developments we’re seeing heading into the midterm elections.
The Federal Reserve met last week and announced another 75 basis point rate hike to no one’s surprise. Chairman Powell kind of alluded to maybe looking at slowing the right hikes down from 75 basis points to more of a 50 basis point level. A chart shown in this episode shows what the rates are looking like all the way until 2024. We now have updated rankings after Mr. Powell spoke about higher for longer rates. How does this affect the everyday consumer? It may be time to start planning on mortgage rates since they are looking like they’re gonna be elevated for a little bit longer than we initially thought. Car loans and basically any other kind of loan may have higher rates for longer. On the positive side, bond rates are going up, and once those start leveling up and prices start leveling out, you should have higher savings rates. Overall, in addition to the rate hikes, the Fed is also tightening and that’s something that’s also taking money out of the system.
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based 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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