Consumer Travel
We’ve been watching the jobs numbers all year because we’ve been talking since late 2020 about how the US consumer has been spending more on goods vs services and in order to see inflation come down, we need the consumer to flip back to spending on services like they have done for the last 50 years. The US consumer makes up 70% of our economy and services makes up over 70% of the consumption. So, it’s very large and important. Now that we’re hitting the mass travel season of the summer, we should see people starting to spend more on services which should be very helpful to inflation. Where we see that first is in the jobs numbers. On Friday, we saw the jobs report come out from the Labor department which showed 390,000 jobs were created and showed a 62.3% participation rate, which is up. Those are good numbers but under hood is really where we wanted to focus. We saw leisure and hospitality lead the jobs gains with 84,000 new jobs. That’s a large percentage of the total 390,000 jobs that were created. That’s what we need to see because you can see, on the chart shown in this episode, that’s where the slack is. The economy is definitely running tight and running hot with inflation rising so where can we grow without causing inflation? You can see on the chart that leisure and hospitality has 1,345,000 jobs less now than they had in February 2020. So, there’s a lot of slack there and a lot of area for our economy to grow in that in that region. That’s going to happen in these summer months when consumer spending is heavily on travel and leisure. That’s why we say go out there, take a trip, go out to dinner, and spend your money on services. Try and spend some on hospitality at your neighborhood restaurants. As we try to keep the local economy going, that’s what we really need to see for the economy to continue to expand without putting more fuel on the inflation fire.
Market History
We continue to look at historical periods for times when the market started the year off trading down. We recently passed 100 trading days for the year. This year, the market has had the worst start to the year since 1970. In fact, it was the fourth worst start to the year ever after 100 trading days. We looked back in market history to see, historically, where the market might go from here. As always, no guarantees, but, as you can see in the chart shown in this episode, looking back at the five previous worst starts the year, the previous batch saw really strong returns in the second half of the year. We referenced 1970 a few weeks ago because of the similar market conditions as the current year. As you can see in the chart, the market was down 23.7% after the first 100 trading days in 1970 but then rallied 31% in the second half of the year. With a lot of negative headlines being talked about every day, whether it’s inflation, the Federal Reserve raising rates, concerning consumer sentiment, midterm election year uncertainty, looking back in history we like how the market has been covered previously after rough starts to the year with similar negative headlines.
Corporate America
With stocks down, we are starting to see corporate management buy back their stock. Why is this important? Corporate management can sell their stock for a number of reasons. They might need the money for liquidity, they may be buying something, they may just want to diversify, but they only buy for one reason and that’s because they think their stock is going higher. It’s important that we’re starting to see them by back stock again. They actually have a pretty good track record, as you can see in the chart shown in the episode that shows a ratio of sellers to buyers, they peek in times when the market is at its highest, and then bottom when markets at its lowest. As you can see, in years 2008 and 2009, not many sellers were out there. In late 2020 and the beginning of 2021, we started to see more sellers take profits. So, they have a pretty good track record and is something we need to keep an eye on.
Technical Analysis
As the markets was trying to find its footing last week, the S&P 500 closed this past Friday at a price of 4,108. That gives us a new resistance level of 4,140 and a new support level price of 4,070. We passed over the hundredth trading day for the year and now our year-to-date moving day average for the S&P 500 is currently sitting at a price of 4,356. We think that’s a really important number to look at especially stretching out to the end of the year. As we’ve mentioned at previous vlogs, this could potentially become our long term resistance level and is one number that we really want 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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