What’s Behind The 4?

There is a reason why we chose the number four in our title today. First of all, the S&P 500 has broken through 4000 and we are looking at record highs. This is not a recommendation to buy, but another thing is that this week four big tech companies, Google, Apple, Microsoft, and Facebook, will be reporting their earnings. Lastly, we are in the fourth month of 2021 and closely approaching the month of May. There has always been an old philosophy that says you should sell in May because those months have been weaker in the past. We do not believe that applies here because of the fact that if you followed that mindset in the year 2020, you would have missed out on a tremendous market rally.

Technical Analysis

It has already reached 4000, but there is a rumor that the S&P500 may have the strength to break through 4,200. We saw a little volatility in the markets last week, but the S&P 500 ended up closing on Friday at 4,180, hovering near record highs. That gives us a new resistance level of 4,210 and a support level of 4,150. Looking at short and intermediate terms such as the 50-day moving average, we are seeing it stay around 4000. It is going to be important to keep an eye on that over the next few weeks. People say they are living through historical times and while we are in relation to COVID and the changes that have occurred, but also because we are seeing the market hit new historical highs. People are always asking how the market can continue to go higher. Next, we will take a look at earnings to see if that could be one of the key indicators that will possibly drive the market to higher highs.

Earnings Season

This week will be one of the busiest weeks as first-quarter earnings season reports start to come out starting with over a third of S&P 500 companies reporting. The focus will be on some of the largest tech companies that were mentioned previously. So far, most corporations have managed to beat expectations with 25% of them already reported. Out of those already reported, 84% of them have reported positive per-share earnings and 74% of them have beat revenue expectations. If companies continue to beat expectations at this 84% level, it will tie the mark for the highest percentage that S&P 500 companies have reported a positive surprise since 2008 when researchers started tracking this. The tricky part of earnings season is that so far, as great as earnings season has been, equity performance has been somewhat flat. We think a lot of that has to do with expectations already being so high and the fact that investors have been looking at high valuations. That is why this week will be so important. As tech companies start reporting, we will need to see continued strength with reported earnings and positive guidance from corporate leadership for the rest of this year as the economy comes back.

Important Market Drivers

Guidance is very important not just from corporate America, but also from Washington D.C. and the fiscal and monetary policy guidance. We are getting a lot of guidance this week on what the future of fiscal stimulus may be from the Federal government and monetary stimulus, which comes from the Federal Reserve. On Wednesday, President Biden will be speaking to the House and the Senate, on the plans of the Biden administration going forward. We know what has happened in the past with the trillion-dollar stimulus and how it has really supported the U.S. consumer and has been a good bridge to get us to sustainable economic recovery. Corporate earnings and their projections show the future and are the sustained growth of the economy. However, we do not want the bridge to stop too short before earnings catch up with where the prices are. What president Biden says on Wednesday and what the chairman of the Federal Reserve says on Wednesday about Federal Reserve policy, will be very important. The Fed is currently buying $120 billion of treasuries and financial assets every single month. That is a huge tailwind and very supportive of the market. Since that cannot be a permanent policy, discussion about a timeline on tapering that down could surprise the market. We do not think that will happen, but those two events and the forecast of what will be done going forward, as well as how the market reacts to it will be very telling about what is good and what is bad going forward. This is something we are watching very closely on Wednesday. Then on Thursday, we get the first preliminary early readings of Q1 GDP. It is looking backward but what does that say for going forward? Can we maintain the strength? Where does corporate America come in to play? This report is not just looking backward at the first quarter but looking at the second quarter now that we are well into April.

 

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
Email Adam Vansant 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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