Will History Repeat Itself?
There has been a lot of negative headline news about the slowing economy, high but falling inflation, as well as the fight about the debt ceiling fight. Today, we are pointing out something we discussed last year: market performance 12 months after a midterm election. In this episode, you will see the chart we showed on our vlogs numerous times last year. Here is an update on where the market stands relative to history and this chart. Keep in mind, the average one-year gain for the S&P 500 following a midterm election is 14.5%, with the index up 18 out of 18 such periods going back to 1950. The positive news is that stocks are right on track. As we passed the halfway point, The S&P 500 is up just over 7% since November 8, 2022. Another gain of just under 7% over the next six months would put the index at its average post-midterm election gain of 14.5% and secure its 19th consecutive gain in the 12 months after midterm. As always, no guarantees, but we like historical relevance. As we get closer to the 2024 election, it is possible for the policy to be less unfriendly than it is today, which explains why this market pattern has historically worked so well after the midterm elections. The current administration doesn’t want to campaign on a weak economy or a bear market. Keep that in mind as we watch to see if history repeats itself.
We got some good news from the Consumer Price Index report last week: inflation was up only 4.96% year-over-year. To the consumers buying the goods that make up this number, a 5% growth rate in cost year-over-year doesn’t feel good. The good thing is that it’s on a downward trajectory. Transport, the cost of moving things, has the best year-over-year number in the report, at only 0.30%. However, what is concerning as we look under the hood, is that the month-over-month, Transport is the highest at 1.15%. This is the time of year when transport costs are most noticed by the US consumer due to it being travel season. It hits the consumer’s pocketbooks because they are spending more money on fuel. The money you must spend on fuel takes away from what you could have spent money on during your vacation, such as dining, hotels, and other things that make the trip worth taking. It’s usually not the traveling that’s the fun part. It’s the time you spend once you get there. In May, June, July, and August of 2022, the US consumer consumed 48 billion gallons of gas. That is a staggering number when you think about it. When you hear about just a one-penny move up or down, the average price of a gallon of gas hits the US consumer to the tune of $480 million. That’s $480 million just for a one-penny move. If you look at a dollar move, that’s $48 billion that the US consumer can’t spend once they get to where they’re going as opposed to spending once they get there. That’s a real negative stimulus to the economy if gas prices go up. However, if they go down, that’s a huge stimulus for the travel, leisure, and restaurant industries, spreading out across the economy. We will be watching throughout these upcoming travel months to see if we can keep fuel prices at least flat, year-over-year. Right now, it’s looking challenging with the recent OPEC cut.
The S&P 500
The market is up year-to-date, with the top ten largest companies in the S&P 500 responsible for 81% of that gain. A lot of times, if this number is over 100%, it is because the market is down. It’s a flight to quality. It’s not over 100% right now, but we still see that flight to quality. This week’s headline was about how Apple is now bigger than UK’s GDP. The UK has one of the largest stock markets in the world, and Apple has surpassed it, meaning that just Apple alone is bigger than the United Kingdom. Apple and Microsoft together make up about 14.5% of our stock market index. That’s more than energy and materials combined. With the current situation with regional banks, JP Morgan is now bigger than every regional bank in the country combined. These are not recommendations, only facts that interest us as companies get bigger. This is something for us to keep an eye on as we see this flight to quality.
The Legacy of Mr. JP Morgan
In 1908, we had a significant financial crisis where JP Morgan and his bank manhandled the economy. During that time, we did not have a Federal Reserve. In 1912, JP Morgan died, and because of his death, newspapers asked what the country would do without him. Only after he died in 1913 did the United States implement the Federal income tax to help support a downturn as they had seen in 1908 and 1909. They also started the Federal Reserve because JP Morgan wasn’t around. Over 100 years later, the ghost of JP Morgan still lives as the bank is now bigger than all the other regional banks combined.
Greg Powell, CIMA®
President and CEO
Email Greg Powell here
Bobby Norman, CFP®, AIF®, CEPA®
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Chief Investment Officer
Email Trey Booth here
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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