With the recent volatility in the market, we wanted to share some research with our viewers. We looked back throughout history to see how the market reacted the last time we had high inflation and a geopolitical event the same year. We were able to find a very relevant chart that shows the current S&P 500 trend is similar to the 1982 midterm election year, which not coincidentally, was the last bout of major inflation for the US. At the same time, we were dealing with Russia and the Cold War. Just like nearly every midterm election year, equities rallied into the election in 1982. As always, no guarantees and no year is exactly the same, but we shared this chart in this episode to show that we’ve been here before. With a volatile market caused by high inflation, conflict with Russia, and during a midterm election year, the market was still able to end up higher for the year. History says stay the course and make adjustments as necessary. Another interesting fact is that the market is down less than 1% in terms of the S&P 500 since Russia invaded Ukraine. The volatility in the market seems to be news driven. It is horrible what’s taking place but there’s other factors that are also impacting the volatility of the market.
Inflation is at 7.9%. That’s the highest rating we’ve seen since 1982 however, there’s a big difference between now and then. Back then, we had nearly a double-digit Fed funds rate and right now we’re at zero percent. We’ve all felt the inflation at the gas pump and another big contributor to inflation was energy. It isn’t all Russia and Ukraine related since we had inflation before then, but the oil prices are really starting to stick out.
The news cycles kind of shifted focus on the Ukraine and Russia issue which definitely is front and center and very tragic, but the market was already down leading into that event and that’s largely because of the Fed. People were concerned about the Fed raising rates and the Fed being too aggressive to fight inflation. There’s been a lot of talk around that and it’s finally here. The first Fed meeting of the year, where they may be raising rates, will be on the 15th and 16th of this month. They’ll likely decide to raise the interest rates to 25 basis points. It’s amazing how long we’ve been waiting for this. March 15, 2020 was a Sunday and in between meetings the Fed came out and announced that they were cutting rates all the way to zero in response to COVID. We’re trying to get back to normal or trying to reverse the extreme circumstances of the global financial crisis around the coronavirus, and this is the first step. It’s not just what the Fed does that’s important but what they project for the future, what they say, and how they say it. The market will go through every single word that Jerome Powell says in his press conference and we’ll dig into how the market reacts to it. We’ve been talking about this for a long time and it’s finally here. The Fed raising rates and how they respond to geopolitical events will be very, very telling.
A few weeks ago, we gave an intermediate technical analysis with resistance and support lines. Last week we saw those support levels be tested. The S&P 500 came in a little bit flat from the range of Monday to Friday, when Friday’s close price was 4,204. That gives us the new short-term resistance level of 4,240 and a new support level of 4,160. Another thing we like to look at it’s moving day averages. It’s important to note that the 50-day moving day average of the S&P 500 was down about .25% last week and is currently sitting at a price of 4,476. It’s also important to look at these moving averages to find a trend and future support and resistance levels. That’s one thing we want to keep an eye on along with the fundamentals because we correlate those back to technical analysis.
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.
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