Despite economic reports for the last six weeks being lower, punctuated with a big miss in payroll two weeks ago, yields have held their own and are on the doorstep of pushing through the important 1.38% level. It’s important to note that the resiliency from yields, despite the weak data, likely suggests that much of the growth scare has already been discounted. Anything above 1.38% will be a breakout. There have been a lot of worries about a rate tantrum, so we want to address that today. We still expect yields to drift higher between now and year-end, but the catalyst for a more painful tantrum that could push 10-year yields above 2%, will have mostly faded by late September. We expect to see the 10-year yield make a fairly muted move up towards 1.8% before the end of the year. Progress above this level and above 2% will require greater fiscal cooperation in Washington. As mentioned last week in the vlog, we are entering the Superbowl of policy actions that could ultimately impact financial markets. These topics include budget, infrastructure, fiscal cliff, debt ceiling, Biden’s three and a half trillion spending package, tapering, and February appointments. There’s a large number of issues that need to be dealt with in the month ahead. The fact that there’s over $15 trillion in negative-yielding sovereign debt globally could keep rates from breaking out too high which could help avoid this tantrum that there has been talk about.
Our research partners at Strategas provided us with a very informative chart showing the correlation of consumer confidence in the trailing 12 months of the S&P 500 earnings. It’s amazing how the spikes in confidence coincide with spikes in earnings. While they’re not a hundred percent correlated, you can see on the chart shown in this video that the big moves really go together. We’ve had very strong consumer over the last 12 months coming off of the dip of COVID. Can that strong consumer trend continue? That also coincides with a big run-up in earnings and may be the canary in the coal mine, so to speak. The information we get on this Friday from the consumer sentiment out of the University of Michigan may be an early indicator of the consumer weakening or it could show the consumer brushing off all the bad news out of D.C. Is the consumer maintaining the strength? We’ve seen the U.S. consumer being very resilient over the last two years, which may continue. If it does continue, then we should expect higher earnings from here on out. This could also be the first crack in the beginning of a chill in S&P 500 earnings growth. If we start to see yields go up and people start to think maybe mortgage rates and their taxes might go up due to the tax proposal talks, could that psychologically have an impact on the consumer? The answer is yes. We’ve seen in the past where mortgage rates have had a very large impact on U.S. consumers, which bleeds into consumer debt, consumer credit, credit card yields, home equity lines of credit, and taxes. This is highly due to people thinking it will impact their excess spending.
Last week we saw some volatility in the market and a little bit of pullback. The S&P 500 Friday closed at a price of 4,458 on Friday which pushes our resistance level to 4,490 and support level to 4,430. We also see the 50-day moving average sitting at 4,424 which correlates with the support level. We also talked about a 4,500 resistance level for the end of the year. This along with what was mentioned previously is something to look at on the fundamental side in order to see if the market will keep pushing up in order to hit the resistance level by year-end. There are a lot of moving parts that we see. We are continuing to anticipate and navigate through it all using a combination of technical analysis as well as fundamental analysis and tying it all into our client’s Financial Blueprints to make sure they’re on track in accordance with their goals despite all the noise and volatility. We believe the more knowledge we give you, the better you understand the moves we make in the markets in relation to your Financial Blueprint and we’re going to continue to keep you updated.
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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