Consumer Strength vs. Inflation

Headwinds

One market headwind that we’ve been following for a few months is starting to get worse. That problem is inflation which is tied to higher demand and lower supply due to the pandemic. Our concern is that in the past few weeks we’ve seen numerous ports in China be shut down due to China’s zero policy with COVID. In fact, we’ve already seen reports from shipping executives saying that there are around 50 container ships that remain backed up around the busiest port in the world, which is in southern China. The chart shown in the video for this episode shows the volume of transportation in China’s ports has significantly declined in the past couple of weeks. This will likely prolong shortages and keep inflation high going into 2022. It’s also important to note that the holiday season is around the corner. Inflation is a concern that the Fed addressed last week, saying that higher inflation will lead to continued heightened uncertainty for the US economy. This continues to be a concern for us and could cause volatility in the market with shortages being well known, even in the auto industry where there is a lack of computer chips. This is something we’re watching carefully.

Technical Analysis

We saw a lot of volatility in the markets last week. On Friday, we saw the markets give back a little bit with a closing price of 4,441 on the S&P 500. That gives us a new resistance level of 4,470 and a new support level of 4,410. Even with the volatility we saw last week, we finally got a little breakthrough on the 200-day moving average which came in at a price of 4,015. We always talk about our base and ceiling, and this shows that our base is slightly moving up. Hopefully, we’ll see some more activity that suggests the same.

Consumer Spending

Going back to inflation, it had a negative effect on retail sales last week. In July, we saw a drop of 1.1%. The expectations were more around 0.3% to 0.4% so that did cause a little bit of volatility to the overall market. Online sales lead the charge along with clothing, which dropped 3.1%. However, there’s a silver lining with gas prices going up 2.4%. This indicator tells us that the consumer is getting out more, possibly going to eating and drinking establishments. This was one of the big numbers that we saw increase year-over-year, up 38.4%. While there was some negativity with the overall retail sales, we did see some positivity year-over-year.

 

 

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
Email Adam Vansant here

 

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