This week we turn the tide in earnings season. About 36% of the S&P 500 companies report earnings this week. This will include some very important technology companies. Updates from last week show that about 80% of companies have beat earnings estimates so far. Obviously, don’t read too much into that because earnings season has been pretty bad, year-over-year. However, the good news is that the S&P 500 is up about 1.5% since earnings season kicked off on July 14th.
A big report coming out on Thursday of this week is for the second quarter GDP number, which includes April, May, and June. There are other reports coming out as well, such as the Consumer Confidence Index and talks about a possible second stimulus bill, but the GDP will be the biggest since it shows the overall economic health of our country. We expect to see changes with the consumer and earnings on the retail side as well. The GDP is expected to drop around 30% to 35% for the quarter. If that happens, it will be one of the biggest decreases for a quarter since WWII. As a firm, we look at both fundamental and technical analysis. From a technical analysis standpoint, we look at what’s called resistance and support levels on the S&P 500. For support level, we are looking for the S&P 500 to hit 3,124. The next support level would be 3,096. That means if the S&P falls below this mark and continues that trend, we could see more of a bearish market. On the other side, the resistance level is at 3,330 and the next level would be 3,390. If the market goes above that, it’ll start to look more like a bullish market. We can’t guarantee that, but these trends that we see will give us a good indication of what we’re looking at in the future.
Back to School
We have seen a lot lately in the popular press about how going back to school is going to look this year. As a portfolio team, we wonder what market and financial impact it will have on the economy. Sending kids back to school is heavily based around the consumer so there are two major factors we’re looking at in this back to school season. What will the direct expenditure look like? Like we always have when going back to school, supplies and equipment will be needed. How will families adjust to their school-aged children being at home? Will one parent have to stop working while the other teaches home school? If parents have to quit their jobs, that’s going to be the most problematic situation regarding school starting back in the fall. The direct spending should be a lot better than in the past. This time last year, it was $80.7 billion. Back to school spending really starts sometimes around mid-June and goes through late August. What’s important about that for retail in the country is that this is the second largest sales volume for retail in the United States across the board, other than the holidays, for each year. Retail makes up about 6% of our GDP. Last year we were looking at $80.7 billion before COVID was here. You would think with COVID-19 that that number would drop but we think just the opposite will be the case. The National Association of Realtors has projected that this year the back to school spending is going to hit over $100 billion for the first time in the country’s history. If you do the math, that’s about a 25% increase. How could that be? The reason is that we are going from purchases like a notebook and a mechanical pencil to having to buy large electronic items such as a computer or a laptop. The New York City school system, which is the largest school system in the country, is going to have some in-school students and some online. Los Angeles is another example being the next largest school system in the country, they’re going to do all virtual. Around 50% of U.S. workers that have school-age children in elementary, middle, and high school aren’t able to work remotely. As this is unfolding, you’re going to have households with parents trying to decide who is staying home and doing the education and who’s going back to work. We think even though we’re getting a good initial consumer pop on the spending of back to school because of the technology, it could cause some issues as people decide what they’re going to do. It could cause a major consumer and market impact. We’re watching it very closely to see how it unfolds.
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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