Inflation and Market Volatility

The Economy and The Fed


The Fed’s “preferred” inflation gauge, the Personal Consumption Expenditures or PCE, not only came in worse than expected, but the prior three months were all revised higher. The whole thing throws cold water on the ‘disinflation’ buzz and the rally we’ve seen so far this year. On a year-over-year basis, the PCE Price Index for services spiked by 5.6%, the worst since 1984. This matters because services is where inflation is running hot and makes up almost two-thirds of consumer spending. This higher reading is not what the Fed wanted to see, so we expect further rate hikes, which will lead to a more volatile market than what investors were hoping for coming into this year. This makes the Fed’s job extremely difficult in bringing down inflation without significantly hurting the economy. We will continue to watch this closely.


Inflation Data


The chart shown in this episode shows the most recent year-over-year changes in the cost of selected items in the Consumer Price Index. The chart shows that services have been the most inflationary. Airfare costs are up, along with hotels, food, and others. However, gasoline is down 1.53%, and used car prices are down nearly 9%. During the pandemic, there was an increase in electronic purchases, such as TVs. However, last year the data shows that television prices dropped 14.40%. Another chart in this episode shows how price changes in consumer goods and wages have developed since 2000. It shows that anything technology related has been deflationary. In 2000, technology items, such as TVs, toys, and computer software, were more expensive and have continued to decrease in price over the years. On the opposite side of that, hospital services, college tuition, medical services, housing, food, childcare, and hourly wages have continued to get more expensive.


Technical Analysis


As long as inflation remains elevated, we will continue to see increased market volatility. After the third week of a declining market, we’re analyzing our technical research closely. We would like to see the S&P 500 stay above the 200-day moving average of 3942. Numerous Federal Reserve officials are speaking this week, and several important economic reports are coming out. For those viewers who like to track the markets throughout the week, keep an eye on the 3942 level on the S&P 500. The market must hold this level as we continue to deal with higher inflation.



Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman 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.
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Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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