With virus cases spiking, why is the market not trading back like it did in March? A couple of points to make on that question. One, the market knows that it is unlikely that we will have to go into another lockdown. Two, hospitals are better prepared to take on new virus cases than they were back in March. One thing that we’re looking at carefully is not necessarily the case growth numbers, but the hospital capacity number. That statistic will be very important moving forward through this.
As we’ve all witnessed, the virus continues to be a hot topic in the mainstream media. March 11th is the date that the World Health Organization marked Coronavirus as a global pandemic. Our clients have been asking what we have seen over the past 100 days and have been wondering what the next 100 days might hold for us all. Certain industries that were affected the most include airlines, restaurants, and retail. Month-over-month, retail has gone up 17%, which is a large boost compared to past numbers. That gives us a good indication that the consumer sentiment may be coming back into the market sooner than later. Summer is upon us which means people are getting out to travel more and that alone should be good for the oil industry and others like the airlines and cruise industries. Along with increased consumer activity, we might also see company earnings start to go up which will be great for the markets going forward.
Over the weekend and late last week, Beijing announced its new national security wall. When it comes to Hong Kong, they will be placing a dedicated central government official inside the Hong Kong government. This will allow the Beijing government to handle crimes against the nation and intelligence in Hong Kong. The reason this is important globally is that Hong Kong is treated separately from Beijing. There are separate trade relationships with Hong Kong, different tariffs, and different financial regulations of Hong Kong companies compared to Beijing. If the developed world starts to view Hong Kong as the same as Beijing, then those special relationships will go away. If that happens, it will increase trade and financial barriers and reduce the potential global growth for that area of the economy. This could create long-lasting negative impacts. The next 100 days and how the globe reacts to Beijing’s increased influence in Hong Kong, will be very important to see. We will see how the perceivable future looks for that area of the world.
Second quarter earnings season kicks off here in a couple of weeks. Earning season this go-around will possibly cause some market volatility. The reason being is that companies will have to show their balance sheets. One of the things that we’ve seen companies doing to get through the balance sheet pressure of COVID-19, is that they are repatriating record amounts of their foreign subsidiary profits back into the United States. The tax law changes back in 2017 gave companies a more fateful route to do that. Some companies have already done some repatriating this year which has really accelerated records for the first half of 2020. With that being said, we see a lot of U.S. companies bringing those profits back which is a great thing because the more profit that they can bring back to the U.S., the better the balance sheets look. Why is that important to your money? The more cash on U.S. company balance sheets means those companies can pay their payroll. This part of the equation is crucially important during this time. Back in 2017, we never envisioned a pandemic would be the reason we used that new tax law, but it’s actually ended up being a great tool for companies in this unique time.
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.
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