Manufacturing reports last Tuesday showed a lot of growth occurring in a V-shaped recovery pattern. Reports came out saying that there’s been about 4 months of expansion in the manufacturing sector, but then 24 hours later, the jobs report showed that total private payroll has only increased by 428,000. That was well below the expected 1.1 million jobs. The reality is, we’re not close to the pre-pandemic employment levels. There’s a lot of conflicting data that the market is having to contend with right now because of that we think a diversified strategy going into the election is very important. There seems to be a tug of war among all the different economic reports coming out.
Last week we talked about the three tactical risk in the markets. To recap, those were seasonality, sentiment and stretch. The two we’re really focused on right now is seasonality and sentiment. Seasonality being one because we have the election coming up. Also, we’re seeing an increase in COVID outbreaks in Europe. We are watching to see if that will cause a global impact ripple effect and come back to America causing issues. From a sentiment standpoint, the consumer is going to play a big role in the upcoming months. Personal income increased last month which is especially important to look at. What is this consumer going to do with the money that they are saving? Are they going to put it back into the markets or are they going to hold onto it? Those things will give us a lot of indication moving forward with the consumer and what trend they seem to follow. We’re going to continue to keep an eye on that 3,550 resistance level of the S&P 500. If the market continues to be above that number we might see a more bullish market however, if we see it fall below that level, we could see some bears come out which is something we are definitely keeping an eye on.
This month showed us a positive sign out of Corporate America. August was the first month since the crisis that no company announced a dividend suspension. In March, April, and May crisis, 40 companies out of the S&P 500 announced that they were suspending their dividends and 19 announced they were going to decrease their dividends. There’s a lot of investors out there that rely on that income. Some of them use that income to live on. Those that don’t use it as income, reinvest it. The dividend payments from companies is a sign of Corporate confidence but then it also gives investors confidence when they receive that check in the mail from companies. It’s not a long trend, but it’s a good trend to see the first month since March where no companies suspended their dividends. Hopefully, that’ll extend into September and we’ll start to see companies maybe start to increase their dividends, which we really haven’t seen at all. It’s not an overly positive sign, but we’re looking for just kind of some green shoots to begin to turn the market to maybe sort of sustainability on the positive nature.
The Federal Reserve
A big reason why we are seeing a lot of momentum in the market from March is because of the action that the Fed took. The Fed was very proactive in what they did. About a week and a half ago, they quietly had one of their most prolific policy changes in a 73-year period, going back to 1947. We’ve said on the vlog many times that our Federal Reserve is unusual. It has what’s called a dual mandate and that means they try to control employment and inflation. The dual mandate goes back to 1947 when President Truman put that it in place. The inflation aspect of it is the one that sort of breaking down a little bit in terms of the way that the Fed handles it. It caused some major policy shift. If you go back to the early 2000s, the Fed has had an unofficial inflation target that they look at in controlling the economy of about 2%. They made that an official target in 2012. They’ve recently started looking at it totally different than they have before. They’re building around that 2% rate, but it’s more of an average across 4 or 5 years. For example, if you have a couple of recessionary years, they don’t mind letting inflation run above that target a little bit as long as the average is good. The reason that is important is because we get a lot of questions from our viewers about why we don’t seem to have much inflation in the system anymore for the Fed to control. There are 3 major reasons for it. One is technology. The second is the proliferation of global supply chains and the third is that you have less union influence in the United States now. Back in the 70s and 80s, a lot more union influence could raise prices, nationally. It’ll be very interesting for markets going forward since the markets initially reacted very positive to the Fed.
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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