Jobs
Last week we talked about the Fed and the jobs report, which came out Friday. Just like in the past months, the headline number raised eyebrows. Ex[ectations were that 450,000 jobs would be added but it ended up being only around 200,000. The report also showed an upward revision to the months of October and November, which makes this headline number not look as low as it may seem. The private sector has also shown to be a lot stronger than the public and the government sectors over the past month, so we’re seeing a common theme. The unemployment rate dropped down to 3.9%, which is a very important number because the Fed is looking at 4% as their go to sign for raising rates. That 3.9% is showing the Fed and Jerome Powell that the economy is strong enough to start raising rates. Also, average hourly wages are up nearly 5% from a year ago and when you combine that with the number of hours worked, they’re seeing a 10% pay increase in the past year.
Interest Rates
The interest rate market has been reacting to a more aggressive Federal Reserve as they have been fighting inflation. We have seen wages and prices go up and are now starting to see interest rates go up. Since December we’ve seen the 10-year treasury yield move up to nearly 1.8% as of this morning. We’ve seen the 30-year mortgage move from 3.1% up to 3.56%. The issue isn’t that they’re moving up but how quickly they’re moving up. A slow methodical rise in interest rates can be easily absorbed by the economy and by investors but a quick move, as we’ve seen in the past, will spook the market. This happens because the market is unsure of when that may stop which impacts companies who have a lot of debt. Companies took on a lot of debt during the last crisis and they must pay interest on their debts. Also, long term earnings are discounted back through interest rates. Safer, stable companies seem to be doing well, so we’re seeing a bifurcation in equities. Interest rates moving up also hurts individual bonds. As interest rates go up, prices come down and so there’s a lot of volatility and that hits Wall Street. It’s also hitting main street with things such as credit card debt and mortgage debt. Interest rates impact the economy as a whole and typically when they go up, its a good thing because it’s sign of a healthy economy. The speed at which we’re seeing them rise, especially after the jobs numbers have come out is something we’re watching. The Fed may need to move quicker to fight inflation, and with a strong jobs economy, that could potentially spook the markets and something we’re watching very closely, is how interest rates are being digested.
Midterm Election Market Volatility
One big topic for 2022 will be midterm elections. Midterm election years have historically been weaker for stocks, and we won’t be surprised to see a tick up in volatility like we’ve seen the past week and a half of the New Year. As you can see in the chart shown in the vlog, the market underperforms leading up to the election but tends to outperform post-election. One reason for the underperformance volatility leading up to the election is that the market doesn’t like the uncertainty of potential policy changes that might come due to Congress potentially being run by a different party. Looking at the chart again it’s clear that, historically, the market starts to act up roughly six months before the election, which is usually around April. It then shows strength postelection when there’s clarity on what party will be in control and what the policies will be. Every year is different in the market, but it’s important for our clients to know that we use this historical analysis in our investment strategy, especially in midterm election years.
Technical Analysis
We’ve seen a lot of volatility in the market so far this year. This past Friday, the S&P 500 closed at a price of 4,677. That gives us a new resistance level of 4,710 and a new support level of 4,640. We’re also seeing the 50-day moving average sitting at a price of 4,674. Despite the volatility and all of the fundamental factors previously mentioned, we’re starting to potentially see a support line, at least from an intermediate term, starting to firm up and almost perfectly match the market.
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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