Follow The Facts
There’s an old saying that everyone has heard before that says, “Sell in May, then go away”. It means you sell out of the market in the month of May and stay out until November. After that it’s said that you ride the wave, so to speak, until the following May. The theory is that less business would be conducted during the summer months. However, as you will see in the chart shown in the video, this theory, has proved to not necessarily be true. The S&P 500 has been up from May through October in every year for the last two decades, except for two. One of those was 2008 and we all know how that went There’s been a broad range of sectors up. Last year, the energy sector led us with a 20% return in May through October, just alone. Maybe the saying to sell in May and stay out until November isn’t necessarily the best saying. People bring up that terminology from time to time, but we follow the data and facts.
Inflation and The Consumer
Consumers are feeling inflation, as hundreds of dollars are being spent by some just to fill up their gas tank. We received the updated numbers last week, where March inflation rose 8.5% year-over-year, with gas, shelter, and food prices, all having the largest contribution to the highest inflation in over 40 years. Inflation numbers are really very important right now as the bond and the stock market are volatile leading into the next Fed meeting in three weeks. The market is going to be paying close attention to every inflation report as the Fed has made it clear that they are going to aggressively fight inflation by raising interest rates. On a positive, there was talk last week of a peaking inflation type of feeling in the air. As you can see in the chart shown in the video, on the right side, the month-over-month increase in March fell enough to cause some economists to believe that we may be finally seeing some relief. A few things we’re looking at in terms of helping lower inflation, is for rents, food, autos, and gas, which has already decreased slightly in the recent weeks, to lead the way in lowering inflation over the upcoming months. Food historically has led the way in periods of slowing inflation. We will be focusing on inflation reports over the next few weeks leading up to an extremely important Fed meeting in early May.
Inflation and Corporate America
The individual consumer is definitely feeling inflation at the gas pump as well as at the grocery store. The stock market, however, is built off corporations and corporate America, which is also feeling inflation. We often focus on revenues, sales, and how much companies are making, but there’s another side of that balance sheet, and that’s the cost of those sales. In corporate America, we’ve seen a large spike in the cost of goods sold. You can see that in the chart shown in the video, where year-over-year we’re seeing costs up 13.4% as of January. However, as mentioned previously, costs seem to have peaked and are now up only 11.7%. So, we’ve still seen costs go up but what we really want to listen for in earnings calls this quarter, is how companies are weathering the storm of higher costs. Are they able to pass that on to the consumer? Are they able to be more efficient? Are they able to keep those margins? On the next chart show in the video, it shows the operating margins for the S&P 500. This is the amount the company is able to keep in earnings after sales and costs. Earnings are really what drives the market higher. If a company can earn more, that send prices higher. This something we want to watch very closely because earnings can be handed back to the investor through dividends and share repurchases and that really drives stock market prices higher. So, costs can go up, but if sales go up and costs go up, the question is, can they maintain those profits? That’s what’s most important and what will be listening for this earning season. It is not just what people are selling but how much are they keeping. For example, how much of the money spent at the pump will the gas stations be able keep. That’s what we’re really watching closely for in this earning season. How will corporate America be impacted by inflation? We want to see if they are they able to pass it on and how much they are able to keep. That’s going to tell the tale of the quarters going forward and whether you should have sold in May or not.
Technical Analysis
We saw volatility sneak its way back into the markets last week with the S&P 500 closing up Friday at a price of 4,392. That gives us a new short-term resistance price of 4,420 and a new short-term support level of 4,360. We’re also seeing the hundred day moving day, average of the S&P 500 sitting at 4,522. This is going to be a very important number to look at moving forward. We have talked about the economic data with inflation, the Fed, and even sectors in the market, so we’re going to see if that 100-day moving average is in fact creating a new support or resistance line moving forward for the long-term.
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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