Earnings & Emotion
The media has been buzzing lately with various topics but the headlines that have been lost are regarding corporate America’s impressive performance in the fourth quarter. Those numbers are significantly important. Profit growth was up 3.1% and if you take out the energy sector, it was up 6%. Expectations were for profits to fall so the fact that they were up, was a great surprise and shows that corporate America is healthy right now. However, the issue going forward is that the first-quarter earnings are being revised down because half of the company’s reporting is talking about impacts from the coronavirus. The average exposure to China for the companies that we’ve talked about has about a 7.2% revenue exposure to China. The average S&P 500 company has a revenue exposure of 4.8% to China. The problem is that the supply lots are being greatly impacted by that so we will watch to see if it continues.
Supply & Demand
The whole issue with the coronavirus impact is the supply chain. Two economies that were brought up over the weekend within the topic was Italy, which is the 8th largest economy in the world, and South Korea, the 12th largest economy. When you put 2 of the 15 largest economies together, along with China, and you have intermediate supply chain issues, there’s no doubt that you’re going to feel an impact. The good news is that this is only a temporary disruption. Companies will eventually work around supply issues. If they can’t get supplied from China, they’re going to find it somewhere else. It just takes you time to negotiate things like that. When you have a market pullback like this on a knee jerk reaction, the emotion and everything that’s out there, it could present some buying opportunities. We are going to watch it but, as of right now, no one needs to panic.
The 30-year treasury rate hit an all-time low on Friday at 1.92%. The 10-year treasury dropped to 1.47%. How does that impact the individual? Your bond portfolio likely went up in value. In addition to that, if you’re looking at refinancing, the FHA 30-year mortgage is now 3.44% which is over a percent from where it was this time last year. We’ve had a lot of clients talking about refinancing, moving, or maybe going from a 30-year mortgage down to a 15-year and right now could be a great opportunity to start discussing that. People may be overreacting because of the rates and it could create some opportunity in the market. In addition to that, we have some clients working for companies that still have pensions. There’s not that many still out there. The pension amount you get when you retire is based on what’s called the PBGC rate. That rate has been dropped to zero and as we all know, you can’t go lower than zero. We’re working with a few clients now to see whether it makes sense or not for them to retire with the higher amount or if they should keep working and continue getting it. Everyone’s situation is different but it’s worth looking at because at zero you’re getting the most exemption that you should. It’s complicated but that’s why we have a planning department to look through things like this for our clients to see what the best solution for them is during times like this.
Navigating the Markets
We manage our portfolios to each client’s Financial Blueprint. When you’ve got this kind of panic taking place out in the market, all our clients have to do is take a look at their plan to see if they’re on track to continue achieving their dreams and goals even with the markets moving. It can be weird navigating through the markets when they are up and down, but we always watch to see if there are any buying opportunities for our clients. Along with market movements, the plan also helps clients when they have thought of making moves such as buying a new house or refinancing. All these things tie back to the plan which then comes back to the portfolio. There’s a lot of ways to profit and we’re always looking and talking about those opportunities when they arise. Please forward this information to your family, and colleagues that might have concerns about the markets and the economy. Our vlog could be helpful to those wondering about the impact of the coronavirus and could also help those that need to understand where they are in life regarding retirement. Specifically, those that are wondering if they should retire now because of their pension and for those simply wondering what’s going on in the economy. These are questions that we answer every day at Fi Plan Partners.
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.