The Problem with Remote Learning
For several weeks now, we have been researching how the different plans for back to school will impact the consumer. Most schools are doing remote learning, which changes things drastically for families. Recently released data shows that there are 43 million working parents in the U.S. that have at least one child that is 18 or younger that are in elementary school, middle school, or high school. The problem is, of that 43 million, 21.5 million of them do not have the option to work remotely. That is a large number of families that will have to decide on which parent is going to stay at home to help their kids with school. This will cause a huge consumer impact through the fall. We are tracking it very closely because of how it comes out later in the year will be important. Another important point is that 17 of the 20 largest school systems in the United States have made the decision to do school exclusively remote. If the school systems are only working remotely, it could have a huge consumer spending impact, which as we know drafts markets.
A few weeks ago, we talked about technical analysis and how one of the things we look at is the S&P 500, which is made up of the 500 largest publicly traded companies. Right now, the resistance level for the S&P 500 is sitting at 3300 with the next level being 3390. We are above the 3300 range, but will the market stay above that? If it can hold there and not go lower, we might see a more bullish tone in the markets. We are seeing a lot of positive economic indicators right now and will watch closely to see if it continues.
Mortgage rates hit an all-time low last week with the 30-year fixed-rate mortgage averaged at 2.88%. That’s down from 3.6% a year ago. The two reasons for the rates continuing to go down are the state of unemployment nationwide and the delay in stimulus talks. This matters for the market because housing starts and building permits are both leading economic indicators. Next Tuesday, we will see the housing starts number and if history repeats itself, these reports could potentially move the markets. Are we going to see Americans taking advantage of the cheap financing or will we see them remaining cautious with what’s going on in the economy?
Pre-COVID Market Levels
If you look at just the price level of the S&P 500, which is likely the broadest tracked index, it looks like the market is telling us that we are back to pre-coronavirus levels or close to it. The average investor, however, doesn’t really feel like we’re back to normal. How can those two things be in so much conflict? It’s because the market can be driven by very few names. If you actually look underneath the cover of just the price level of the S&P 500, which has rallied, it’ll show you that nearly 40% of the S&P 500 companies are 20% or more away from their highs, which is nowhere close to back to normal. Only 26% of companies are within 5% of pre-COVID levels. It’s not a very broad-based rally for individuals so, why is that important? That’s important because it explains why individuals and certain investments might not feel like we’re back to pre-COVID levels because unless you own a very narrow focused group of individual investments, you are nowhere near where you were. It’s very challenging when you just look at the market. It can show things that may not be indicative of what the average investor or the average consumer is feeling because it is market value-weighted. This is why it’s good to track these levels and why we track, very closely, where the market is as well as look underneath the hood. You can really see a lot of dispersion of companies and individuals and that explains why it may not feel like we’re back to back to where we were.
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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Stock investing involves risk including potential loss of principal.
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