In the past few weeks, the market has traded up on the news that the virus cases are starting to peak. We think the true test is going to start this week and continue into the next couple of weeks as the market tries to digest the first-quarter earnings reports. We look at a couple of things along with the earnings reports. We look to see if companies are having solvency issues and if they are having supply chain interruptions. Are they having layoffs that there’ll be talking about and how strong are their dividends? Company guidance and company outlooks will be crucial here in the next two to three weeks. We’re also looking at economic reports. We’ve already seen 17 million people lose their jobs over the past few weeks. If this continues, we’re trending to have an unemployment rate above 15%. Auto sales declined 35% and consumer confidence is down 10% month over month. This week our attention will be paid close to retail sales. We expect that number to come down lower than it was in the last report. We’ll also be getting the credit card charge off the report. Are people having a hard time paying off their bills for what’s happening with this virus event? This report will show that. Earnings drive stock prices and so we’ll be watching that carefully this week as first-quarter earnings season kicks into gear. People must have confidence that we’re moving forward, that we’re getting back to the future in the right way. What does that future look like? We’re starting to get data and information and plans from the government and the health authorities and others as to how they think this will roll out and how we will gradually open up doors as well as trying to prevent all of us have to go back to social distancing later in the year. So, we’re taking all these variables in. That’s kind of the checklist we’re looking at in order to get back to the future.
SBA Loan Process
When you combine all this stimulus package, it adds up to about a 10% GDP push. Last week what was good about it on the SBA side was that small loss administration loans started getting approved and started to speed up. On Good Friday, about half of the 334 billion loans submitted, about 168 billion of them were approved. The approval process going very well. A lot of people visited the E-Tran portal on the SBA website to start their process. They all kind of hit early in the week all at one time, which caused a little bit of issue with there, but they got the kinks out and have been moving ever since. The banks also had a little bit of clarification problem on what the promissory note should look like between the borrower and the bank early in the week, but midweek that started to smooth out and we started to see actual money get in companies’ hands. If you go to our website at this very moment, www.fiplanpartners.com, and click on the headlining banner for COVID-19 that’s up at the very top, you will see vlogs that Ashley, Jay McGowan, and others have done regarding opportunities for business owners, small businesses, unemployment, the CARES Act, and more to keep you educated and up to date.
A Meaningful Shift
We’ve seen the national average for gasoline drop to $1.88 per gallon. We want people to stay home, but if you must get out for essential reasons, gas is much cheaper. This is a meaningful shift in the consumer world. The price drop in oil is unique because it’s a demand shock. Historically speaking, what happens is when OPEC gets together, they agree upon a production number and trying to control the supply. Due to the recent crisis, demand is where the drop is coming from and that’s something that they have less control over. Over the weekend, OPEC, U.S. producers, and Russia came to an agreement to cut production by 9.7 million barrels a day which is a historic cut. They have never come anywhere close to agreeing to cut that much. The reason why the market’s not necessarily reacting so positively is twofold. One, it’s less than was expected. People were whispering there would be a cut north of 10 maybe as much as 15 million barrels a day. Historically speaking, the U.S. consumes 20 million barrels a day. So, if you have a price difference of $40 a barrel, that’s a savings of $800 million a day. However, to save that money, you must consume the oil and right now, we aren’t consuming it. The drivers across the world, airlines, cruise ships, they’re just not out using oil. While there’s usually a benefit to a price drop where it hurts producers and helps consumers, we’re not having that counterbalance. Because of that, the producers are really trying to play catch up to reduce the production to a point where they can kind of balance out with the consumer. It’s less of an issue when people aren’t consuming, and people aren’t saving. Another issue is that there’s nowhere to put the oil being produced. If people aren’t using up what’s being produced, you must store it somewhere. There’s talk that there’s a billion-barrel glut of oil being stored around the globe, that once this virus dissipates will have to be worked off before they really can start making good money. This is a very positive move in that it’s reducing the supply by a large number and hopefully it’ll save some producers in the U.S. Hopefully we will be saving the ability for the U.S. to remain energy independent going forward. It’s something that the administration was looking at closely. It’s very important for our economies to be energy independent. While this won’t shoot profits to the roof, it may keep companies in business, which is very important. In the U.S. we’ve seen several rigs and activity drop 40% year over year. There has been a huge impact on U.S production and consumption. Across the board, the energy market has been very much in flux. This news over the weekend while a positive move is not a fix All.
Over the weekend we got some positive news. During this pandemic of the Coronavirus, Prime Minister Boris Johnson of the U.K. was released from the hospital after recovering from the virus. We have now witnessed one world leader, several athletes, musicians, actors, and more celebrities recover and go back to their lives. It’s been a really bad time, but we have started to get a glimmer of hope seeing a world leader go from the ICU to being released from the hospital within a two-week time period. Maybe that can take some tension, not only off the U.K. but from the world overall. Having an important person getting back to business, as usual, will make a huge difference. We are starting to see where these headlining individuals can play a role in pushing vaccines and different items and possibly give just a glimpse of hope into the future. Unfortunately, Boris Johnson had to go through that whole experience, but it motivates everyone to move forward to find vaccines and answers so that we can all get back to focusing on the future.
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.
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