Investors' Insights and Market Updates

Understanding the Supply Shock The Federal Reserve recently raised interest rates in line with market expectations. Because interest rates had already moved higher ahead of the decision, the increase itself was largely anticipated and had already been reflected in financial markets. The move also followed rate increases from other major central banks, including the European Central Bank and the Bank of Japan. The more important question is what comes next. Historically, raising interest rates can be an effective tool for addressing inflation caused by strong demand. Higher borrowing costs make it more expensive to finance purchases, which can encourage consumers and businesses to delay spending. In turn, that reduces current demand and can help bring supply and demand back into balance. This creates a challenge when inflation is being driven by a supply shock. The current pressure in oil markets is an example. The issue is not necessarily that consumers suddenly want more gasoline. Rather, there is a constraint on the amount of oil available. Consumers still need to purchase gasoline even when prices rise, meaning higher interest rates do little to address the underlying supply shortage. That creates a difficult combination. Interest rate increases raise the cost of borrowing at the same time that the cost of essential goods and energy is increasing. If the current rate increase remains a one-time move, its impact may be relatively limited. A prolonged rate-hiking cycle, however, could create additional pressure without directly addressing the supply-side factors driving prices higher. Another development to watch is the relationship between the United States and China, particularly as the two countries navigate the global energy market. China is one of the world’s largest oil consumers and also produces significant amounts of refined petroleum products for export. Discussions between the two countries could have implications for global energy supply, tariffs and other geopolitical issues. The combination of energy prices, monetary policy and geopolitical developments makes the coming months an important period for investors to monitor. The Impact of Energy on Inflation Energy prices are one of the most visible ways consumers experience inflation. With gasoline prices around $4 per gallon in the Birmingham area and higher prices being seen across much of the country, energy costs are increasingly noticeable in household budgets. Consumers are particularly sensitive to gasoline prices because there is not always an immediate substitute. Higher prices can therefore have a direct impact on day-to-day spending and become an increasingly prominent part of the broader inflation discussion. One important measure to understand is Personal Consumption Expenditures, or PCE. PCE measures the prices paid by U.S. consumers for goods and services and is one of the inflation measures closely monitored by the Federal Reserve. Energy spending currently represents roughly 4% of total U.S. PCE. That percentage is significantly lower than it was during some previous periods, including the 1980s and early 2000s, when energy represented a much larger share of consumer expenditures. That distinction is important when considering the global impact of higher oil prices. While U.S. consumers certainly feel higher energy costs, the effect can be substantially greater in emerging economies where households devote a larger portion of their disposable income to energy. The total amount the United States spends on oil also provides useful perspective. U.S. oil consumption has generally remained around 20 million barrels per day in recent years, outside of the unusual conditions of 2020. At an average price per barrel, that translates into hundreds of billions of dollars in annual oil expenditures. When oil prices rise, the total amount spent on energy increases significantly even if consumption remains relatively steady. At approximately $80 per barrel, for example, annual expenditures are substantially higher than at lower price levels. At $100 per barrel, the increase becomes even more pronounced. That additional spending has broader economic implications because more consumer and business dollars are directed toward energy rather than other goods and services. As the year progresses, the path of oil prices will therefore remain an important factor in the inflation outlook. If energy prices remain elevated, consumers are likely to continue feeling that pressure, particularly as the economy moves toward the midterm election year.   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 Ty Miller, AIF® Vice President Wealth Consultant 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.The post Shocks and Demand first appeared on Fi Plan Partners.

Financial independence comes with plenty of new financial decisions, and a few common missteps can make managing money more challenging than it needs to be. In this week’s episode of Educational Insights, Robert Moody breaks down five money mistakes young adults often encounter, from skipping a budget to misusing credit and putting off saving. He also shares practical habits that can help build a stronger financial foundation over time. Watch to learn more. Robert Moody, CFP®, CEPA® Senior Vice President Wealth Consultant Email Robert Moody 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 recording are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 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.The post Five Money Mistakes Young People Should Avoid first appeared on Fi Plan Partners.

How Higher Rates Are Affecting Bonds The Federal Reserve has taken a measured approach to communicating its policy intentions, allowing the market to lead rather than trying to guide it with specific forecasts. That dynamic appears to be playing out as the market has already priced in much of the expected rate increase. Over the past month, the two-year Treasury yield has increased 46 basis points, the one-year yield has risen 34 basis points, and the three-month Treasury yield, which is closely tied to the federal funds rate controlled by the Fed, has increased 24 basis points. This represents a relatively healthy relationship between the Federal Reserve and the markets, with market expectations pulling the Fed forward rather than the Fed pushing markets in a particular direction. Traditionally, the Fed raises interest rates to slow economic growth and reduce inflation. The challenge this time is that inflation is being driven largely by higher oil prices rather than excessive economic growth. As a result, higher interest rates could slow economic activity while elevated oil prices are putting additional pressure on consumers. For consumers, that could create a double impact. Higher oil prices can reduce disposable income, while higher interest rates increase borrowing costs. For investors, however, higher rates can provide a benefit. Interest rates represent what borrowers pay, but that interest is income for investors. With roughly $7 trillion in money market assets in the U.S., a 25-basis-point increase would provide a meaningful boost to interest earned by savers. Ultimately, higher rates are likely to be a net positive for savers and a net negative for borrowers. How those effects ultimately flow through to the stock market will be important to watch. What History Tells Us About Stocks History can provide some perspective on how stocks have responded to previous Federal Reserve tightening cycles. Looking at the S&P 500 following the initial rate hikes across the six tightening cycles since 1994, stocks have generally struggled during the first several months following the initial increase. On average, returns were negative through the first four months before improving significantly five to six months after the initial hike. However, there have been notable exceptions. Following the initial rate hike in March 2022, the S&P 500 fell over the subsequent two months and remained down for more than 12 months. That period presented a uniquely difficult backdrop, with long-term interest rates rising from historically low levels as inflation surged to multi-decade highs following the pandemic. The Federal Reserve was forced to tighten aggressively after initially viewing inflation as transitory. Its history of continuing to raise rates until something breaks also contributed to fears that a recession was approaching. The stock market ultimately experienced a roughly 25% drawdown, consistent with the kind of decline investors might expect during a recession, although the U.S. economy did not technically enter one in 2022. The environment today is notably different. Another important exception occurred in 1997. Stocks significantly outperformed the other tightening cycles, with the S&P 500 gaining nearly 8% two months after the initial hike and approximately 42% one year later. The dot-com boom and optimism surrounding the internet helped propel stocks higher despite rising interest rates. That period offers an interesting comparison to today’s environment, where enthusiasm surrounding artificial intelligence plays a similar role. Revolutionary technology can, at least for a time, outweigh the effects of higher interest rates. Another rate hike in 1999 was followed by another strong 12-month gain in the S&P 500, illustrating how long the technology bubble continued to inflate before eventually bursting in 2000. The key lesson from these historical cycles is that rate hikes do not necessarily derail bull markets. The picture changes when rising rates coincide with increasing recession risk. Today, recession risks remain relatively low. Economic growth is solid, the labor market remains healthy, and while inflation is still elevated, it is well below the levels seen in 2022. At the same time, interest rates have already moved substantially higher, which may reduce the shock to bond portfolios from additional modest increases in market-based rates, such as the 10-year Treasury yield. While history does not provide a perfect blueprint for what comes next, today’s combination of economic resilience and moderating inflation looks more like the late 1990s than the challenges of 2022. That does not mean investors should expect another 40% rally. It does suggest that the current economic backdrop remains supportive for equities, even if markets experience volatility in the weeks and months ahead as investors continue to assess the Federal Reserve’s path.   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 Ty Miller, AIF® Vice President Wealth Consultant 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.The post How Will Stocks React? first appeared on Fi Plan Partners.

Saving even a modest amount each month can add up over time, with the potential impact shaped by consistency, time, and investment returns. In this week’s episode of Educational Insights, Bobby Norman explores how starting early and allowing compounded growth to work over the long term can influence the value of regular savings. Watch to learn more. Bobby Norman, CFP®, AIF®, CEPA® Managing Director Wealth Consultant Email Bobby Norman 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 recording are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 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.The post The Importance of Saving Early first appeared on Fi Plan Partners.

AI is no longer just transforming manufacturing and technology. From banking and healthcare to customer service and accounting, AI is reshaping the “back office” jobs that have long provided a path to the middle class, creating both challenges and new opportunities along the way. In this week’s Educational Insights, Ashley Page explores which roles are changing most quickly and what this evolution could mean for workers, businesses, and the broader economy. Watch to learn more. Ashley Page, JD, MBA Senior Vice President Wealth Consultant Email Ashley Page 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 recording are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. 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.The post Is AI Replacing America’s Back Office? first appeared on Fi Plan Partners.