There is no secret that one of the bright spots in the economy throughout the pandemic has been a strong housing market. However, we are starting to see some weakness because of higher lumber prices. US lumber prices have risen 170% since April. This has increased the average cost of a new home up an average of $16,000. The increase is due to the coronavirus lockdown and supply shortages. Labor shortages caused two-thirds of firms to delay or cancel construction projects back in March and April which caused a drastic drop in demand for labor. The drop in production caused a major shortage. When construction picked up in May, it sent lumber prices soaring for the past few months. If we continue to see lumber prices where they are or higher, the housing market could go through a slowdown. If the housing market goes through a slowdown, that could likely add to the volatility that we are seeing in the market. We are watching lumber prices and the housing market very carefully to see how it plays out.
Short Term vs. Long Term Impacts
This weekend, we got the sad news that Justice, Ruth Bader Ginsburg passed away. While that will have a very long-term impact on the legal field of the United States, depending on who is said to replace her, but it will also have an impact on the market in the short term. That is really what we want to focus on here, not the politics of the long-term Supreme court, but the short-term impact on the market. The reason it has an impact on the market short term is that as time has passed and as we have gotten closer to election day, the likelihood of a second large stimulus bill, somewhere between $1.5 trillion and $3 trillion, has continued to decrease. There is something getting in the way of the wheels turning on D.C. working towards that stimulus. A recent survey by PricewaterhouseCoopers said that over 80% of business executives believe that another stimulus is needed to get companies back on their feet. D.C. was moving slowly but surely towards compromise, and this added another very large issue for them to disagree on. They could likely stop what was a very large and likely beneficial stimulus bill that would happen before the election. It can boost markets and spending. That is where, in the short term, that we’re focusing on. The passing of Justice, Ruth Bader Ginsburg is very sad on a personal level, but on a market level, it’s very detrimental to see this new hurdle that Congress and the Senate will have to agree on getting past. It’s unlikely that a large $3 trillion stimulus bill can be passed before election day due to his new decision that they have to make.
A Spike in Cases
Another big bit of news over the weekend is that the UK and Europe are potentially looking at another lockdown. As we have seen cases in the US start to fall, they have had the opposite happen. It’s been very positive for us as we have seen economic expansion. In Europe, they are seeing the opposite as the cases have spiked. That’s concerning from a market standpoint for Europe themselves as well as for international markets. If Europe shuts down, the question becomes whether or not they are ahead of the US. Will the US shut down again? Is this the same wave for them that the US saw back in the summer or is this the indication of a wave that we could potentially see in the fall? That is putting a big damper on the markets. We have been in hopes of reopening in the US, so those two factors are really putting a lot of uncertainty in the market and we all know that the market does not like uncertainty. It really puts, puts the COVID uncertainly back front and center.
Technical Analysis Breakthrough
Friday, we saw the market and S&P 500 break through the lower support level of 3,300 that we’ve mentioned several times. It finally broke through and held at that level on Friday of last week. This put us below the 50 days moving average. With election risks coming up and with September and October being historically volatile months, we’re going to see a lot of volatility due to the election, coming up. One of the levels we’re looking at now is 3,240. The lowest level to watch for is 3,100. That 3,100 mark will show a 10% pullback. We will keep an eye out to see if this market continues to be volatile in the next couple of months. We are also keeping an eye on how the consumer reacts to the markets. There are those that think that this market has moved so fast that we need to take little steam out of it. With that, you could see a 10% correction. At the same time, there are a lot of positive things taking place.
The Main Street Stimulus Program
The Fed’s main street program is aimed at medium-sized companies, which have employment rights of around 1000 people. The Fed has had this plan in place for a while now and has about $600 billion carved out for it. The problem is that only $1.5 billion of that program has been used. What ended up happening is that there were obstacles between the banks, the Fed, and the FDIC. On Friday, those groups met to solve those obstacles. What we feel like is going to happen between now and the end of the year is that the remaining amount, which is nearly all of the $600 billion in stimulus, is going to be aimed at middle size companies, which have great multiplier effects. They buy from small companies so we have a lot of stimuli left to help between now and the end of the year, that’s about a rollout.
Greg Powell, CIMA®
President and CEO
Email Greg Powell here
Bobby Norman, CFP®, AIF®
Email Bobby Norman here
Ashley Page, JD, MBA
Senior Vice President
Email Ashley Page here
Trey Booth, CFA®, AIF®
Senior Vice President
Email Trey Booth here
Adam Vansant, AIF®
Associate Vice President
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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