With the uncertainty around the Coronavirus, it is almost comforting to see the markets trading down over something that we are a little bit familiar with. The news broke that there are escalating tensions between the U.S. administration and the Chinese administration about trade and supply chain. It’s negative to the market and would be considered a “dancing bear” but one we’ve seen before and one we can kind of calculate. Companies and corporate America have somewhat prepared for the rising tension with China and the U.S. The tension seemed to have dissipated with everyone focusing on the singular enemy of the Coronavirus but is coming back to surface once again. It’s almost a little bit comforting that we see the market trading down on over something that’s a familiar. We can better deal with the unfamiliar “unknowns” that have been stirring the market up and down every day by what seems like historic proportions. A big battle will start up between the bears and the bulls as the economy opens. As to which direction this market will go, there are many indicating factors that will give insight to that. If optimism gets back into play, the stock market usually will always move forward before the actual economy picks up. When you see the market kind of rollover like it has the last couple of days, it’s almost saying, hold on, not so fast. Then we see things like escalating tensions with the two largest global economies and that may be an indication as to the market saying that we’re not out of the woods yet.
A Positive Outlook
We wouldn’t be surprised to see the market have to grind through the month of May as the states start to reopen and as we start to deal with negative economic news around earnings and other economic pains. One of the most common questions that we received in April was about how the market is slightly up even with negative economic news. There are a few things to consider when pondering that. One thing that we mentioned before is that the market reacts before the economy. With that being said, maybe with the market being up, it is possibly saying that the worst is behind us. Another reason it could be up, despite negative news, is that the Federal Reserve has taken unprecedented steps to put liquidity in the system and they’ve done so in record time. Also, even though we’re seeing high unemployment, we’re still seeing employees contribute to their 401(k), which creates a buy into the market. These types of situations are why we have a diversified strategy in your portfolio. Nobody knows for sure when the bottom to this market is going to occur but what we do know is that there are valuations out there that we’re watching closely. If the market should trade down, there may be great buying opportunities. We could also look up and see a drug treatment that gives people the confidence to get back out into the economy. This whole scenario will be studied for many, many years from an economic history standpoint.
We look at future indicators a lot but let’s take a look at “backward” indicators. The GDP for the first quarter came in at a negative number of 4.8%. The GDP in the Eurozone was down 14.4% which is three times as much as the U.S. The GDP shows the economic health of a nation. Looking at Europe we wonder if their GDP number is a future indicator of what we might see in the next coming month for the U.S. We might see the bears start to come out of the woods more so often than not. When we’ve had these downturns, new innovation has presented itself and a lot of new business models have come about. Europe does not have some of the innovation, technology, and research that we have here in the United States so everybody will be watching closely to see if that is an indicator of things to come. It could be that the U.S. will continue to move forward and recover quicker than Europe will, but it’s something that we are keeping a close eye on.
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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