Gas Prices and Interest Rates
After the last Federal Reserve meeting in November, the market started pricing in six rate cuts based on the Fed’s optimistic outlook on inflation. Since then, we’ve talked on these vlogs about how we don’t believe that will likely occur. This will be the first time the Fed comes together and pushes out what they think are the expectations for this year. The Fed will likely have to look at two recent instances to see what type of impact it has on inflation and interest rates. One of those items is the weather. We’ve all noticed it’s a little colder here in Alabama in the last few weeks. However, that doesn’t impact oil production. Where it does impact oil production is in North Dakota, where we produce a lot of oil. It was so cold that they had to stop producing oil. Typically, weather-related oil production cuts involve hurricanes going through the Gulf. This time, it was the cold weather that caused the halt. This is the first time in a long time that this has happened, resulting in oil production in North Dakota dropping by a million barrels a day. That is a lot of oil coming off the market that has yet to bleed into the gas market, as it will take some time. We expect that it may have an inflationary impact on oil down the road.
Shipping Containers and The Fed
The impact of the Red Sea and the Middle East conflict on shipping has worsened. The recently released data shows that parts of the shipping lanes are now 225% higher in cost than they were just four weeks ago. We all remember shipping in 2021, and it seemed like something the Fed called transitory. However, it turned out to be much worse than transitory. Because of this, we would be surprised if the Fed used that word this time. We expect them to be more cautious and blow off what appears to be these one-off situations, which we expect will cause prices to go higher in the near term. It would be hard for the Fed to project strong rate cuts and inflation being beaten when we see these cost inputs coming in quickly, right into their meetings. We’re watching it closely as we feel like this is something the Fed has on its radar.
Something we like to do in our vlogs is cover topics that clients and business partners ask us about throughout the previous week. One topic that came up last week was why, in most of our strategies, we heavily overweight the US stock market compared to international markets. In this episode, we show a chart that looks at annual global equity returns from 2011. On that chart, you will see that US markets have enjoyed fairly consistent outperformance over other markets. We have been overweight in US markets throughout this period of outperformance. Looking forward, we are focused on where economic growth is expected to be favorable. The current consensus global GDP expectations favor the US as growth expectations increase. The US is the only economy globally trending higher on recent reports. Fundamentals for 2024 favor the US. We are not saying some international exposure doesn’t make sense because it offers some diversification, but the US economy and markets look to continue its outperformance in the near term.
Markets and The US Dollar
The Fed is meeting this week to see what to do with interest rates. However, there’s another meeting this week that isn’t getting the notoriety it should, which is the Treasury quarterly refunding meeting. This meeting has a significant impact on markets. In August, the Treasury decided to issue more long-term debt for the first time in three years, which had a big negative impact on the market. At the same time, yields rose, and the dollar spiked. In November, they reversed course and started to issue more short-term debt, which had the opposite effect on the market then. The stock market soared, and the dollar and yields went down. They have another meeting this week, so it will be essential to see if they go the short-term or long-term route. Yields are in a different spot than last year’s end, so it will be interesting to see how the markets digest what is decided.
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.