We have had July 13th circled on our calendars for a long time because of CPI being released. Inflation is one of the top points for markets and the individual consumer. The data came out and surprised to the upside. The markets were expecting 8.8% year-over-year and it came out at 9.1%. This looked very disappointing in terms of top line numbers. The market rallied late in the week. Why would this be the case? There were some underlying positive data points. Core goods inflation fell for the 4th straight month. This is something we have been talking about for a while in that we need to see goods inflation come down and that service inflation typically is not as harmful to the economy. Also, the price of imports fell for the 2nd straight month. This shows that the U.S. dollar is very strong. We are importing deflation for lower prices and exporting inflation for higher prices. Exports went up by 0.7% month-over-month and imports, excluding fuel, went down by 0.5%. In terms of global economics that’s a huge number. We might potentially be seeing the beginning of peak inflation. This is something we are continuing to track closely.
Back in April, we compared with what’s going on now with war, inflation, higher oil prices and being in a midterm election year to historical periods in the economy and markets. We were able to find that similar headwinds for the markets that occurred in 1970 and 1982. The S&P is trading in a very comparable way as it was in 1970 in terms of a very similar economic set up and finished up the year strong. Of course, there are no guarantees for future performance. Also, in 1982, we saw some similarities when the U.S. was dealing with inflation, Russia and the midterm elections in the same year. In 1982 the markets rallied in the second half of the year helped by inflation coming down. We are also seeing a similar pattern in commodity prices coming down off the highs. Once again, no guarantees of future market performance but we like the historical relevance and hopes that the second half of the year might be better than the first. There are key timing points of why the market rhymes. These are not randomly selected years because a lot of logic and data that goes into this research.
Flight to Quality
This year we have witnessed a flight back to quality in terms of dividend stocks. This time last year there was a lot of speculation in the markets. Prices were going through the roof and companies were growing in terms of the market without a lot of news. We have kind of retreated from this and starting to get back to the trend of dividend payers outperforming. We call these short-duration equities and historically tend to be a good way to fight inflation in that their time horizon of earnings is a lot shorter. With earnings season upon us it’s a great time to view those dividend payers and see how they are continuing to fight inflation.
The overall markets lagged for a majority of last week while reversing course on Friday with a S&P close of 3,863. In addition to that we saw all 11 sectors up for Friday’s closing day. This gives us a new resistance level 3,900 and new support level of 3,820. Our year-to-date S&P moving day average currently sits at 4,251. Now that we are in mid-July these numbers will be important to keep an eye on as we get closer to midterm elections.
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.
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