Technical Analysis
The S&P 500 closed this past Friday at a price of 4,229 which pushes the resistance level to a price of 4,260 and the support level to 4,200. Another thing to point out this week is the 100-day moving average which has finally pushed over the 4000 mark. This is one item that we like to look at from a long-term standpoint. We usually report on short-term resistance and support levels, but this 100-day moving average could potentially be our base moving forward and could be indicative of a floor or a ceiling for the market.
Taxes
Technical research is very important to us because it helps us navigate through the volatility of the market. At the same time, we like to look at the fundamentals and the events that are taking place that could also impact your portfolio. Investors got some great news this past Thursday when President Biden offered to lower his proposed 28% corporate tax hike to try and compromise with the Republicans. This was part of his effort to get the infrastructure tax package moved through Congress. With the current corporate tax rate at 21%, talk of a tax increase of up to 28% has been a big worry for investors as the economy is still trying to recover from the pandemic. Analysts have been saying that an increase that steep would slash earnings per share and profitability by as much as 8% next year. At this point, any proposed rate increase that is below the original 28% proposal will be a sigh of relief for investors and corporate leadership. Now that the newest proposal for tax hikes has been lowered, tax structure has gone from a headwind, as a worry, to a tailwind. This is something we are watching carefully over the next few months to see how it will impact our investment strategy for the future.
Jobs
We bring up the job number each month because it has become the most important statistical data point to watch. Why is that? Jobs are always important to the economy because a growing economy with more jobs is always good news. However, traditionally speaking, the Federal Reserve has a dual mandate, which is tricky. It is a traditional, big bureaucracy, where it seems overly simple and overly complicated at the same time, to just have two mandates for the most important board in the world. Those mandates are purposely and slightly vague. One mandate is to have a strong and stable dollar which is there to keep our currency at a level point so there is not a massive inflation situation. The other mandate is to have full employment and the two can contradict one another. Early in expansion, inflation is not a big issue, but jobs can be. Then, as you get further into expansion, jobs become less of an issue, but inflation becomes more of an issue. The Fed increases rates to reduce production and that really slows down the economy to stop inflation but sometimes they get the timing wrong. The reason jobs are so important right now is because Chairman Powell has said that the jobs number is all that the Fed is watching. They are not worried about the dollar weakening or inflation because they think that is temporary therefore all they are focused on is full employment. Look at the chart in the video to see that we are still roughly seven and a half million jobs away from where we started the year 2020 with. On Friday, the economy grew by 559,000 jobs. That is roughly 15 months of very strong monthly job reports to just getting back to even. How long can the interest rates be this low? How long can the Federal Reserve continue to be this accommodating? The answer is that it can be a long time due to them being focused on one of the two mandates, which is jobs.
Productivity Per Worker
We saw the stock market react positively to the recent jobs report which was talked about previously. How can so many unemployed people be good for the economy and the stock market? It is not all related to Fed easing. In the video, we show a chart that shows productivity per worker. GDP growth over time is made up of two things which are employment growth, which is more people working, and how productive each worker is. Those two combined give us GDP growth. This productivity shows that during the crisis, the output per worker increased. That makes sense because a lot of people were laid off meaning the people that were left working how to be more productive. What you typically see in recovery is that as employment comes back, productivity collapses because those new employees must be trained, and the number of GDP dollars must be divided between more people. Productivity took a hit right at the beginning of the economy reopening. Right now, it is rallying back up which means that we are adding jobs and productivity. This is a very good cycle for the economy because not only are more people getting jobs, but the people that are currently working are doing so more productively. This could be a virtuous cycle where we have large economic growth on the backs of employment. This is the reason that the Fed is staying stable on the sidelines. The fiscal Congress is also staying on the sidelines and not reducing supply by increasing taxes, potentially. We really do have a window here, where there is a lot of positivity and where good news is good news and bad news is good news.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here
Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
Email Adam Vansant 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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