Momentum

There’s a lot going on in the next eight days leading up to the election. We have a busy week ahead of us in terms of economic reports and earnings. These reports will really shape the momentum as we head into what’s going to be a very impactful election. Today, we will see the report on home sales. Tomorrow, the consumer confidence report comes out, and then Thursday, we are expecting a very big GDP report. We could see GDP growth of over 30% for the third quarter. Also, this week, 186 of the S&P 500 companies will be reporting earnings. So, there is a lot going on in addition to all the politics, that will be impactful.

Technical Analysis

Where do we stand with the leading indicators of the S&P 500? Let’s break it down on a technical level. On August 2nd, which was 90 days out from the election, the S&P 500 closed at 3294. Something Trey has talked about a lot on our vlogs is that we are looking at these indicators to see whether the incumbent party will keep the seat. Historically, the market has been able to predict election results since 1984, and even beyond that with a few exceptions. Friday, the market closed at 3465. We now have a resistance level of 3590 with the support level being 3330. These numbers are very important over the next week, leading into the election, to see what trends continue and to see what happens to the volatility around those trends. Last Thursday, the market fell below the October 7th intraday level but ended up finishing 0.5% up for the day. We are seeing a lot of volatility and it is going to be very important to keep a close eye on the S&P 500 over the next couple of days.

Fundamental Value

Earnings are important because they show the fundamental value of the market. The S&P 500 is made up of the 500 largest publicly traded companies. It is one of the main indexes that we watch very closely, not just for a price level, which Adam quotes in our vlogs weekly, but for a fundamental and value level. We saw a big deterioration in earnings during the COVID crisis. How we are coming out of that crisis is what’s very important and why the next eight days are so important from an earnings standpoint. It is not just the quantity, but the quality of companies that are reporting. The five largest companies are reporting over the next eight days. Those five companies alone accounted for 25% of the entire S&P 500’s net income in the last quarter. How these companies do, not only in this quarter but how they project going forward, will have an enormous impact on the valuation of the total market. Is the market expensive based on earnings and fundamentals? Is the market cheap? These companies that report will help dictate that and could give us a good boost into future quarters. It could also put a ceiling on valuation if their earnings do not grow or if they disappoint. This could put a ceiling and could potentially drive the market lower. Which again, could be indicative of what may happen in the election. There is a lot of ins and outs that will come out in the next eight day days that could give us momentum into the fourth quarter and as we push into November. On the other hand, it could be a headwind and push the market lower. Not just the election, but a lot of big, fundamental, and economic factors over the next few days could tell the sign of where we are going to end the year. Without another stimulus from Congress, we are really needing these earnings reports to come in very strong.

 

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
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.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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