Unlocking Stock Potential in Low Inflation

Unlocking Stock Potential in Low Inflation

By Max Fogel

According to the latest consumer sentiment survey from the University of Michigan, the one-year outlook for inflation is down to 3.1%—the lowest it’s been since March of 2021. 

With energy prices falling and consumers adjusting to the present economy, the tide is shifting for the American economy. So how might this impact stock potential in the immediate future? 

Inflation Trends and Market Response

On December 13th, the Dow Jones crossed 37,000, and some indicators point to a continued upward swing for many stocks. 

Why is a continued upward trend likely? Two reasons are readily apparent.

Subdued Inflation Outlook 

The University of Michigan’s survey comes as a national sigh of relief. A year ago, consumers were still tensing up every time they went to the grocery store. Now gas prices have been dropping steadily, with the average price for unleaded gas falling below $3.25—a $0.30 drop in the last year. 

Additionally, consumers have adjusted their expectations in the face of the prior federal interest rate hikes. All in all, companies are seeing signs of growth now that inflation fears are lessening.

Robust Jobs Report

Another factor driving stock potential is the strong November jobs report. The nation’s unemployment rate fell to 3.7% (less than the predicted 3.9%), with several sectors experiencing growth. Job growth only further fuels the growth of American business.

Volatility and the Federal Reserve’s Stance

As much as this data paints a positive economic outlook, it’s important to acknowledge the volatility of any inflation predictions. After all, around one in four economists still see a recession as a possibility for 2024. Should this happen, any stock potential seen today could quickly evaporate. 

The Federal Reserve’s role has been something of a high-wire act: seeking to balance the need to slow the economy without causing it to crash. Since March 2022, the Federal Reserve has instituted 11 interest rate hikes, raising the benchmark borrowing rate by roughly 5.25 percentage points.

Many economists may have expected another hike for 2023, but on December 13th, the Fed announced that rates would remain the same. More good news could be coming in 2024: the Federal Reserve expects to make three rate cuts in 2024, though the full effects may not be felt until the latter half of the year.

In all likelihood, Americans can probably expect a 1% drop in the fed funds rate by this time next year, though this depends on careful monitoring to mitigate the consequences of dropping rates too quickly and destabilizing the economy’s organic expansion.

Consumer Sentiment and Economic Indicators

Strong job growth remains a leading driver of strong stock potential. While the relationship isn’t exactly precise, a growing job market can increase confidence in the stock market as a whole. And the companies themselves get the benefit of a full corporate head count, which lowers labor costs and drives profits even higher.

The recent labor news is just one economic indicator leading to today’s stock potential. Consumer sentiment is also on the rise. As the University of Michigan’s report shows, inflation concerns are weakening; Americans are more willing to spend, which in turn translates to increased earnings potential for publicly traded companies.

Implications for Stock Potential

If concerns about inflation have kept you from investing in the stock market, lessons from the past show that inflation drives the value of assets up, therefore increasing the stock market. The market has been one of the best inflation hedges for the last century.

Having an experienced financial professional like Fogel Capital Management can allow you to invest with confidence. If you’d like to learn more about how we can help you, call (772) 223-9686 or email mcfogel@fogelcapital.com.

About Max Fogel

Vice President, Private Wealth Advisor

Max joined Fogel Capital Management in the fall of 2022. As an Investment Advisor, Max works closely with our clients to help them confidently pursue their financial goals. Max began his career in finance in 2019 as a Financial Analyst on the Merchant Capital team at Maxim Group, where he advised pharmaceutical companies on raising capital through private placements. He quickly moved into traditional investment banking and joined Canaccord Genuity – Global Capital Markets, where he worked in the Technology, Media, and Telecommunication (TMT) division. During his time at Canaccord Genuity, Max advised on transactions totaling $350 million. In the summer of 2021, Max took on a role as a Senior Analyst at Madison Alley Global Ventures, where he provided expert advice on numerous transactions in the TMT sector. Max attended Indiana University, where he earned a Master of Science in Finance degree from the Kelley School of Business and a Bachelor’s of Science in Public Financial Management. He is registered as an investment advisor in Florida, New York, and New Jersey, and holds Series 7, 63, and 65 licenses. Max’s commitment to providing the highest level of service and expertise to our clients is evident in his work. He brings a wealth of knowledge and insights to the team, and we are proud to have him as an Investment Advisor on the Fogel Capital Team. To learn more about Max, connect with him on LinkedIn.