The Financial Impact of COVID
A lot of market participants will be holding their breath this week looking at financial reporting on earnings for the third quarter. We all know that the economy has slowed down, but financials have been particularly hit as it really lagged during this recovery in most of the other indexes. Earnings season has really started to kick off and one thing we’re watching for is if financials have possibly recovered or if they are still kind of in the depths of what was an extremely sharp recession. They will be the canary in the coal mine for this year’s earnings season. Analysts are expecting a 20% or more decline in earnings year-over-year for the third quarter compared to last year. That is a large number but somewhat expected. There’s no secret that it has been a rough economic time but it’s also somewhat of a shot in the dark to think that maybe one reason why analysts should be holding their breath right now is that only 69 of the 500 companies that make up the S&P 500, gave guidance for the third quarter. There was so much uncertainty that the companies could not even see their own businesses three months out. Analysts usually use those corporate guidance numbers to have an idea of where to set their future expectations. Without that guidance, we are kind of going into this earnings season rudderless. With the financials kicking us off this week, we might get to see some signs of what direction we should expect, and we can, again, set our expectations for the remainder of the earnings season. It will be very important to see how markets react and to see if the market is over or undervalued based on the earnings as well as to see how companies are doing. We have been growing a lot purely on hope. We have focused on politics because we all know that the risks of politics have always had very important impacts on the markets. Another round of stimulus would be very important in relation to the markets, along with activity from the Fed, but at the end of the day, blocking and tackling of equity investing comes down to whether companies are making money and how they are investing profits. We are beginning to get that blocking and tackling data so that we can kind of start to see into the future a little bit. Hopefully, companies will start providing guidance into the fourth quarter and for early next year. As things start to clear up, we will get a good picture of how to invest going forward. Politics may take up a lot of the oxygen in the media right now, but it is never bad to remember that companies are running and turning a profit and it is important that we analyze that data.
Anticipation and Strength
This week, and in the next couple of weeks, we still may have stimulus talks taking place that could help businesses and involve the banks. The PPP loans and the fiscal stimulus that goes to individuals all go to the bottom line of banks which is very important and helps a lot of issues in the economy. Another thing to keep in mind right now is that the markets anticipate what is going to occur. A lot of times markets will move before we see some of the economic numbers and right now, we are seeing strength in the market. On previous vlogs, Adam Vansant has reported where the S&P 500 was in relation to support and resistance levels. As of this morning, it was around 3,500 with a lot of strength behind it in anticipation of another stimulus. As we move forward, they might take a breath with the hope that this is the point where we start to turn the corner. There are only 11 Fridays left before Christmas which means this year is moving fast with a lot of positive things taking place.
First-Time Unemployment Claims
The first-time unemployment filing came out again last week and, not surprisingly, they were still elevated above 600,000. The popular press seemed to think that that number was not so good. What we do when we see these types of reports is to pull the curtain back and research what is really behind the data. The reality of it is that this is the lowest level of first-time unemployment fillings since COVID started. Clearly, we are continuing to make great progress on the unemployment side. Another thing about that large unemployment number is that out of that 600,000 plus reported, around 34,000 of them were census workers, which were temporary jobs. What that says is that it was a little bit higher than it typically would have been if it were not for the census workers being added to it.
The consumer is getting more and more confident as we go. Consumer data has continued to improve with each month that passes. Unemployment claims are getting better and interest rates are staying low. We are seeing consumers refinancing mortgages, buying new homes, purchasing new automobiles, and starting to make purchases in preparation for the holiday season. The market looks to the future and while on the surface the absolute unemployment data looks bad, the trend is showing to be positive. Earnings may look bad on an absolute basis, but when you look at them compared to last quarter and compared to expectations, they may be good. It is all about where the trend is going, that way the market can price into the future. We have talked in previous vlogs about the different sectors showing a lot of strength and others that are not showing as much strength, but also keep in mind that we fully believe in innovation. Innovation is taking place before our very eyes and because of that, it is going to be a very eventful fourth quarter. We plan on keeping our viewers updated through all of it as we look at what is moving the market in different ways and how to connect the dots as much as possible.
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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