#456 Bull or Bear – Fork in the Road

Stimulus

Today, the second round of stimulus money, which is $310 billion, is set to be available. In our prior blogs, we have talked about the $350 billion and the fact that it was exhausted about 13 days. This round will probably be like that, if not faster. The good news this that this program overall is going to save between 50 and 60 million private company jobs in the United States which is half of the private company employment in the United States. A lot of people have asked how the U.S. plans to pay for this stimulus since this time last year we had a deficit that was $1 trillion. All the recent funding has taken us to $3.7 trillion, to give you historical reference. That is pretty much where it was right at the end of World War II. The great thing about it, in the bull category, is that because our interest rate in long-term funding has dropped, our service cost as a nation on the $3.7 trillion, interestingly, is actually less than the prior $1 trillion that we had. If there’s any time to be adding stimulus into our economy in this way, it’s right now because the interest rates are so low.

The Fed Meeting

People are wondering how the market is currently up with the horrible economic numbers that we are seeing. One of the reasons the market is up is because of the Fed. They have taken significant action in the past few weeks. They cut rates to zero and have rolled out a series of emergency funding and allowed lending facilities to keep credit flowing. One thing we will be watching is on Tuesday and Wednesday of this week, the Federal Reserve has its quarterly meeting. We are waiting for Wednesday to see what Fed Chairman Powell will have to say during his news conference. While we don’t expect certain action to be taken by the Fed this week, what Chairman Powell says could be a market mover. Are we going to see a V-shaped recovery or a U-shaped recovery and how bad is the economy? The bank of Japan and European central banks are all meeting this week as well. We have noticed that central banks around the world are taking steps to keep the global economy up and running.

First Quarter GDP

One of the things we have heard over and over through our research and through media is that time will tell. We think time will start to tell with this upcoming first-quarter GDP number. This is the first report after the virus kind of started in the month of March. With this GDP number, we should see a little bit of context about what’s to come on the next quarterly reports. The GDP is just a snapshot or an estimate of the overall economic health. It can seem a little backward-looking. This GDP will report on the growth rate for the first quarter of our economy. The more important thing is to see if this is an indicator of how the second half of the year is going to be. Of course, the second quarter is going to reflect on what we are currently going through, and we might even see a jump in the third quarter. The hope is that the third quarter could possibly be the turnaround we’re looking for when everybody gets back to their jobs, back to work, and the economy starts to open up fully again.

Analyzing the Data

The first quarter GDP clip we’ll get this week is backward-looking like explained previously, but it does include the beginning of the economic shutdown. In addition to that, this week will be showing 1/3rd of the S&P 500 companies reporting earnings for the first quarter. We will take a look at how the data deteriorated in the month of March as the shutdown began and extrapolate that into how much that may impact the second quarter if we push forward. Another thing we’re looking at is the difference in overall GDP slowdown versus Corporate America and the large-cap companies that are reporting their slow down. The S&P 500 are large-cap companies and typically don’t include the mom and pop stores down the street. GDP encapsulates the large consumer, the total economy. The difference between how large companies are performing versus the overall economy is going to be very important to watch because that’s where the brunt of the pain is being felt going into the second quarter. There are estimates that credit card use on discretionary expenses is down 95% year over year. That pain is going to be felt on our main streets, which GDP reflects. That discrepancy is something we’re going to watch very closely because we can take those numbers and then push them forward into assumptions for the second quarter and potentially third quarter. The market prices in the future, not the past, but you’ve got to look at the past and analyze it to help project the future. This is our first chance to be able to look at the data and analyze it for the future. We are looking at main street versus Corporate America along with when the economy does open up, what does it look like? What are we left with? There are some very important data points and even though it’s backward, we can use it to look forward.

 

 

 

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.

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

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