This hasn’t been a dull start to the week, at all. We have a lot to talk about today and one is crude oil prices. Saudi Arabia and Russia have major tension right now. Saudi Arabia cut oil prices over the weekend and Russia came back and said they would not be cutting their output, even though there’s a low demand due to the coronavirus. The U.S frackers really put a damper on their control of the market. Saudi Arabia wants to keep its control over Russia and they say to let it run. There is more there than just economic data. We also saw the 10-year treasury fall below 0.5% and it’s been a long time since it has been that low. We might see the Fed cut rates even lower after they meet again next week. One good thing we saw is the job number. These are February numbers which were calculated before the coronavirus started spreading to the U.S. We don’t want to overemphasize this, but it is important to look at it. There were 273,000 jobs created compared to 175,000 estimated. That’s a large increase! The reason why that matters is that this means that a lot of headway was being made before all the virus talk started. We witnessed a strong economy with a large job increase. One large number that we haven’t seen in a long time was the manufacturing number, which proves the point that the economy is still strong.
You never want to have a panic or any situation like the coronavirus, but if you’re going to, you want it to happen during a strong time. It’s easier to weather these storms when you come from a position of strength. Seeing the job number in February come out so strong, gives you confidence that you can weather the storm better than most in the world. It’s hard to remember in times like these when you see oil down 30%, that there are two sides to every trade. Interest rates are down and that may hurt banks but that’s helping borrowers. Mortgage lenders may be hurting but mortgage borrowers, the consumers, are thriving. The U.S. consumer has been pushing this global economy for a while. If you can cut interest rates, that helps you as a consumer. Oil prices may be down and that may hurt all companies but that also helps, again, the U.S. consumer. If you’re out driving your car, the gas is cheaper and will probably continue to go down. Airlines that have been hurt by travel; they’re getting a good boost from lower oil prices. If there’s a give and take, you want to be very diversified when you look at the overall market.
Technical Analysis on The Market
When we look at the overall market, we look at the S&P 500 and look for support areas. What does that mean? A support area is a price that’s below where it currently is, where buyers and sellers have come in. It’s a technical analysis and not a fundamental analysis, which we typically talk more about. An area we’re looking at on the S&P 500 is 2730. Why is that important? That low was set in the summer of 2019 when the fear of the China trade war was happening. We thought we might be going into recession and the economy was slowing but we bounced back. Buyers came in at that level and it was rescued. That’s why 2730 is an area we’re watching very closely. If we can hold that, we feel like that’d be a strong indicator. That would also be roughly a 20% drop from the peak of just a couple of days ago. Typically, when you don’t go into a prolonged recession, the market doesn’t fall further than 20% so we’re watching these numbers closely to see if cooler heads can prevail. We needed some pullback in the market, so the valuations on stocks at this point look a little bit better. Yea, it feels like it’s going down and we’re in unprecedented areas, but when you really pull the curtain back, you realize we’re just at levels that we were at last summer and it isn’t an all-time low. This isn’t a recession low, it’s just an eight-month low, and something to kind of keep in mind when you’re watching all the panic pushers on the TV.
Greg Powell, CIMA®
President and CEO
Email Greg Powell here
Trey Booth, CFA®, AIF®
Senior Vice President
Email Trey Booth here
Adam Vansant, AIF®
Associate Vice President
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.
Podcast: Play in new window | Download