Romance with Inflation


Core CPI


This week’s market-moving event could be when the consumer price index report comes out on Tuesday. Expectations are that the annual price growth decelerated to 6.2% in January. The core CPI, which takes out the more volatile food and energy numbers, is often seen as a better measure and is projected to rise 0.4% month-over-month, which is different from what the market or Federal Reserve wants to see. The core CPI number had started to come down at the end of last year, especially the inflation of core goods. The market started the year strong on the thought that inflation was coming down, so a hotter inflation number could reverse the trend in the market. We’re concerned about Tuesday’s report because we’re seeing a rise in gas and used car prices. Used car prices have surprisingly risen in recent weeks, which was unexpected. They remain above historical prices going back to 2008. So, Tuesday’s inflation report is significant because trading sessions and market trends were negatively impacted throughout last year on days when CPI was reported. With the much stronger-than-expected jobs report seen two weeks ago, a higher inflation number could damage the market for a few weeks.


Market Moving Data


When the Congressional Budget Office updates its official budget baseline, it’s typically a non-event. This report comes out on February 15th and is expected to be a market mover. Why does this budget baseline matter? It is the number that congress uses when considering bills or changes to the deficit and spending. They use the Congressional budget baseline to guide where things are going. This number hasn’t been updated since May, and a lot has happened since then. The current Congressional budget baseline uses a 1% Fed funds rate. Currently, the Fed funds rate is 4.75%. That’s an additional $300 billion in interest payments that must be built into the future budget. That’s also $300 billion that congress, when dealing with the debt ceiling debate, must take off the table for spending and use for interest. In addition, spending overall is up $570 billion above the baseline estimate. Again, another dollar figure means that congress must pull that spending off because it’s already been accounted for. Tax revenues are relatively flat, so a big tax windfall is not expected. What does all this add up to? It means that the deal over the debt ceiling, originally expected to last until July, will be pulled forward by as many as 2-3 months. Congress initially thought they had as many as five months to do this; however, they may only have as little as 6-8 weeks. That’s a much shorter timeline to get a bill passed, which could pull the market volatility forward. In 2011, the S&P 500 was down 15% during a similar situation. The market has ignored it more this time than it did then because markets typically don’t react until reality hits. With the possibility of market volatility coming sooner than later, we will dig into the baseline data that comes out on the 15th and plan to react accordingly.


Short-Term Volatility


We wanted to share a Super Bowl fun fact with you this week. According to Carson Investment Research, there have been eight instances since 1910 of a Philadelphia team winning the Super Bowl or World Series. Each win was followed by adverse events such as the Great Depression, the Great Recession, etc. Obviously, that’s coincidental and not something we trade off of. However, it helps us to feel better when talking about the Chiefs winning Super Bowl LVII instead of the Eagles. On a more serious note, sticking with technicals but focusing on seasonality, February is typically the second worst month of the year aside from September. In February, weakness traditionally occurs in the second half of the month, starting around the 15th. However, it has been historically followed by a strong March. We are also amid the strongest quarter of the 4-year presidential cycle. So don’t let this short-term volatility get you down.



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

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.
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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