A Time in History
The market is down for the eighth week in a row and because of that, we wanted to look back in history to see what was going on the last time we had this kind of volatility. We found some similarity with the year 1970. On a chart shown in the video for this episode, it shows that this year’s market is tracking almost exactly what the market was doing in 1970. The 1970’s also had a lot of similarities to what’s going on in today’s economy. The year 1970 was midterm election year, there was an international war, we had a recession following a pandemic, and we also had inflation and higher oil prices. No guarantees, but we’ve been here before. In 1970, the market started the year terribly, but it rallied closing out the year. We’re not saying that 2022 is going to copycat 1970, but it’s important to look at historical examples of the last time we saw this type of volatility. There’s a phrase that goes, “History doesn’t repeat itself, but it sure does rhyme.”
Inflation
What gives us hope that we can see inflation come down? To answer that question, we want to look at what the early leading indicators could be. We have been talking about the sale of goods versus services since 2020, which was a huge driver of the inflation we are dealing with right now. What could cause that to come down? The first line of business is that if you buy a good, it has to be shipped so we looked at freight rates. On a chart shown in this episode, you can see that in 2020 the cost of shipping something from China to the US or from China to Europe, spiked and at some points it spiked nearly 400%. That spike then bled into the inflation that we are seeing today because something is shipped on a truck or a train and then it gets boxed and sold, then at the end of the day, it shows up on your front porch. All that cost’s money. The first line where that cost is the shipping into US ports and we’re seeing that come down fast. That could be an early indicator that our spending on goods is coming down. That may sound bad, but that’s good because right now in the summer travel season, we’re seeing service spending maintain and stay high. This could be the first indicator of inflation coming down and we could see the Fed not have to be as aggressive, which would be very positive for the markets.
Economic Slowdown
The Fed is trying to achieve slowing down the economy. So far as consumers, we haven’t really seen that. Corporate America on the other hand is starting to kind of embrace that with IPO activity being virtually non-existent, M&A activity down, corporations not spending money, and more importantly, they’re not issuing new debt. Debt issuance is way down over the past couple of years with interest rates near zero. They are issuing about two trillion in debt per year and this year, so far, it’s just 728 billion which is way behind pace and slowing that down very well. That’s important because with rates higher than they were before, we don’t want these companies taking on new debt and paying high interest rates. We want them to continue paying the almost negative interest rates. That’s important to them because they’re just starting to spend their cash.
Technical Analysis
We saw a large pull back in the markets last week with the S&P 500 coming in at Friday’s close at a price of 3,901. Despite the pull back, seven out of the eleven sectors were up for Friday’s trading day. The new resistance level is sitting at a price of 3,960, with a new support level price of 3,840. It’s important to keep in mind that our 50-day moving day average is currently sitting at 4,302. The reason that’s important is we’re starting to solidify the long-term resistance level as we start looking towards the end of the year. This is one number for people to focus on.
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
Adam Vansant, AIF®, BFA™
Vice President
Wealth Consultant
Email Adam Vansant here
Ty Miller
Associate Vice President
Email Ty Miller here
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.
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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