The Debt Ceiling
This week’s market-moving event is around the debt ceiling debate. Investors will watch carefully as the House Speaker gives his speech at the New York Stock Exchange. We expect him to call for a spending cut as part of the debt ceiling conversation. When we have these types of events, we like to see how the market has historically reacted to similar events. We looked back to 2011 when the House Speaker spoke to the New York Economic Club. What’sInterestingly, the price action of the S&P 500 this year seems almost identical to the pattern we saw in 2011. At this exact point in 2011, we understood that we had a bigger problem. The same became true in conversations today around the debt ceiling. Now that the policymakers are starting to focus on the matter, the debt ceiling debate will likely cause uncertainty in the markets and is something we will be observing over the next few months. We will continue to keep the viewers updated on the markets because, as always, politics do matter, and it’s getting close to that time, with the debt ceiling will be more of a conversation.
Inflation Data
In last Monday’s episode, we were looking forward to the inflation report because that has been the data point that the market has moved off for the previous twelve-plus months. That report came out with results better than expected. Year-over-year, the Consumer Price Index grew by 5% to beat expectations of 5.4%. More importantly, this reading puts CPI right in line with where the Fed Funds Rate is, which is 5%. We’ve been looking forward to that point since late last year. We were surprised that the markets didn’t rally after seeing that data point. We had to look under the hood to see what would cause the market to not take this as a positive. We found out that it’s likely because the volatile food and energy sectors, along with used car prices, drove CPI down. We are happy that motor oil is down 17% year-over-year, which is a significant drop. However, OPEC’s announcement about major cuts in oil production starting in May could have been what the market is looking through too. The market may see oil prices down now, but the reality is that prices won’t stay down. Used vehicle prices were down 11%, which is phenomenal, but new vehicles were up 6%. Those weren’t consistent indicators, so that may be why the market took a very positive inflation number, saw it flat line with the Fed Funds Rate at 5%, and took it in stride. Regardless, it’s positive to see inflation come down symmetrically, as we predicted late last year. This is something we’re watching and taking as a positive sign for what we hope to be long-term growth.
Market History
“Sell in May and go away” is a popular saying, but it hasn’t held up very well over the last 20 years. In the previous 20 years, there have been only three instances where the market was negative from May to October. The average return was about 4% from different sectors, not one outperformer. So, the saying to sell in May might not have as much relevance. One interesting tidbit we saw was that this saying came about when the US was more industrialized, and factories would shut down for a month over the summer to allow people to go on vacation while kids were out of school. The difference now is that society is more digitalized, and people aren’t taking the summer months off. Earnings won’t be affected because companies aren’t shutting down. This is probably why we don’t see that dip anymore. This is historical data regarding past performance, so there is no guarantee, but we plan on watching to see what happens this year as we approach May.
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
Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here
Ty Miller
Associate Vice President
Email Ty Miller here
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.
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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