Consumer confidence is up
With the Memorial Day weekend fast approaching we are starting to see gas prices on the rise along with some positive news about consumer spending and the housing market. For the first time in a year consumer spending picked up in April. That is important because 70% of the economy is consumer spending. Consumers are choosing experience over goods, such as going out to eat with friends and going on cruises. There is also a trend of people buying more online than in retail stores. This is a trend we have been watching for a while.
Build a new home and create 3 new jobs
On Tuesday the Census Bureau reports on the state of new home construction. This should be up about 9.2%. On Friday the National Association of Realtors will report on existing home sales. We particularly like the new home construction numbers because when you build a new home, it creates three jobs for nearly a year. These jobs are with construction workers and suppliers. With existing home sales you don’t get this same multiplier effect. This is a key point for consumer confidence. When housing is good, consumer confidence is good.
What’s holding up the economy
Consumer confidence and the housing market are really the only two bright spots in the economy. These two parts have been holding up the economy the past two years. This will be very important going forward to sustain the economy. This directly impacts investors. When consumer confidence is up, it encourages people to invest in companies that are doing well.
Expect gas prices to go up
This morning Goldman Sachs claimed that they are expecting oil to go higher. That is a big statement as Goldman Sachs has been very bearish on oil for a while. They expect oil to go up to $50 per barrel. This is not a big jump from the current $47 per barrel but the reasoning is important. They are sighting that oil is at a 20 year oil production low with issues in Nigeria, Canadian oil fires and other events. Even if this is a short-term rise in oil prices, it could hurt the consumer, as we will see gas prices rise at the pumps. Higher gas prices will cause consumers to stop paying for that experience we talked about earlier. This in turn will cause the economy to slow and impact investors’ portfolios.
Stock market is decoupling from oil
The stock market has gone down over the last three weeks as oil prices have been rising. The market is decoupling from oil but in the wrong way. We were hoping that oil would go down and the markets would go up but we are seeing the opposite. This is concerning and the reason we are staying conservative in our portfolios.
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Greg Powell, CIMA
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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.
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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