Building a Consistent Base

During this crisis and market downturn, we are watching the S&P 500 very closely to see where buyers are coming in to add support. The market is looking for the floor and then looking to build a wall and a ceiling around it. We are watching very closely for that 2344 market on the S&P 500. That was the low back in 2018-2019. We briefly crossed below that this year, but we bounced back above it. If we can put that in as a floor and not cross back below that level of 2344, that can create a very strong area for us to start to build and rally to get us through this. The only downside of that is that 2650 is a ceiling number that we have been watching for, but it hasn’t been able to get above that during this crisis. If we can build a floor, then maybe the next layer will be crossing that ceiling. We’re currently at around 2590 on the S&P500 so we’re closer to the ceiling than the floor. Building a consistent base gives the market the strength to power through and move higher. It’s very important, from a technical standpoint, to build a strong base so that these wild swings of 5% one day and 4% the other, start to get calmer and we can have a more rational market. In these kinds of market environments where we’ve had so much uncertainty, people are looking for what can give them confidence and information to show which direction this market may head next. In these types of situations, some things rely on fundamental analysis, which looks at corporate earnings as well as how a company’s being managed. Fundamentally, a lot of that is a guesstimate so people are really relying on some of the technical analysis to see where the confidence starts to come in. These levels are an indication of what people think will happen in the future. If you think things are going to get better, the market will create a floor and will start to rally. The fundamentals will soon follow after that. Times like these where the fundamentals are changing so much, you really have to look at the market and certain price levels to tell you what the general participant in the market thinks. That’s what’s very important. We don’t know what news is going to come out in the upcoming weeks. It could be positive about the mask, healthcare issues, a test for a new drug. Those kinds of things could turn the confidence level of the market fairly quickly.

Market Watch

We’re talking about the energy sector this week because back in the 2008-2009 recession, the energy stocks came back up before the S&P 500 did. There’s some historical relevance for the energy sector stabilizing. Last week oil markets rallied 37% for its best weekly gain ever after President Trump said that the Saudis and Russians agreed to cut oil production by 15 million barrels. The energy sector has been under a lot of pressure and kind of had a double whammy of demand, shock, and a supply surge. The same week it had its best rally, it had his first significant bankruptcy announcement. It’s important because the energy sector has over 6.7 million American employees, which is 5% of the overall employment numbers. It’ll be good to see the energy sector stabilize. Having said that, over the weekend, tensions flared up with the Saudis and Russians so the production meeting has been pushed back but we will continue to watch that as it evolves. We are looking at what sectors will react favorably coming out of this downturn. The overall market will respond first before the overall economy does. A lot of times in the discussions people will blend market and economy together and the reality of it is, is that the markets will always lead when we are starting to go into recovery. There are sectors right now, much to everybody’s amazement, that are actually making money. The market typically starts to bottom 3-6 months before a financial crisis ends. What happens is, the market starts pricing at a future that is past the crisis. That’s why we look at sectors and why it’s important to see what participants in the market are expecting which sectors will lead us out of this. When you start seeing those sectors outperform, that kind of gives you a guidepost of how and when we are going to get out of this and how markets are going to start pricing in 2021. We’ll start to see a floor set and we’ll start to figure out which areas of the economy and the market will lead us out of this. Therefore, it’s important to look not just the overall market, but specific sectors.

SBA Loan Program

The future was a little bit brighter on Friday when the SBA got their major loan program cranked up. The data that came out showed a little less than 10,000 applications were submitted. The main thing is that the loan extension probably saved about 400,000 jobs. The average approved loan amount was for $345,000. That number feels more like a payroll number and not like a larger piece of equipment that could be half a million-plus. The Community Bank, which is one of the larger banks, also did very well on Friday. The loan process has been started, but not in the system yet because the money’s not yet out there. In the coming months, as we start to see the peak of the virus and what’s taking place, hopefully, we’re going to start to see the economic stimulus come into play to really help people get back to work.

Innovation

Last week, Bobby alluded to the unemployment numbers, which were kind of staggering, but as we look at other news we can see some positivity. Average hourly earnings reported a 3.1% gain in the month of March. That was the first month since this virus fully hit where we’ve gotten some really good intel from that side of things. One section that we saw a lot of jobs become unavailable was the service, leisure and hospitality sectors. We are starting to see some innovation with bars and restaurants. Your favorite waiter might actually become your favorite delivery person for the restaurant. As we see this innovation evolve you’ll start to see some companies thrive just by finding new ways to approach the situation. We’re also seeing innovation in tech companies. A large tech company over the last week said that they’ll start to make a million masks. That can create job opportunities. So, as we start to see things evolve and innovation in technology take place. We might see some of these workers come back into the workforce and other jobs created that we’ve never seen before in all sectors, across the board.

 

 

 

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

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

Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page 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.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

CARES Act - Individual Provisions (PDF) Lessons Learned From The 2008 Financial Crisis