A Divided Government
With the election being over, we’ve done some analysis and want to share that with you today. Last week we talked about how historically the market performs better when there’s a divided government. It appears that for the foreseeable future, that’s what we’ll have. A divided government is fine in relation to the markets, except when there’s the stuff that needs to be done. Right now the market is actually looking for some type of stimulus bill so we’ll be watching that carefully over the next couple of weeks to see if it can get done before the new inauguration that comes in January.
After the Ballot
What may surprise people regarding the election is what happened down-ballot. Everyone is aware that the president was at the top of the list, but there were a lot of initiatives that had market impact down-ballot, mostly in states where things are legal or illegal, and where there were impacts to publicly traded companies. For example, California passed a bill that allows for app-based drivers to not be considered employees, but instead are considered independent contractors. These workers being labeled as an employee would mean the positions all would have to have the benefits of being an employee, which would make the app or the gig economy unworkable if people have to have a cost involved for having a full-time employee that is an app worker. That was a big bill for technology companies out on the west coast. In addition to that, Arizona, Montana, New Jersey, and South Dakota, all legalized the recreational use of marijuana. That’s something we’ve seen start to expand over the last few years. There are certain public companies that have exposure in that area that we may see start to see more growth in that industry going forward. Tennessee, Maryland, Louisiana, and South Dakota, all voted to legalize sports betting. That’s another trend we’ve seen where legalization has expanded across the country and we’re seeing companies shoot up out of nowhere and really start growing in market exposure. This is where the consumer and deregulation down-ballot really may have a positive impact on the market that really didn’t have anything to do with the presidential race. There’s a lot of action happening that we’re looking at down-ballot where it may work for the next 4, 10, or 20 years, possibly. No guarantees, of course, but the market is usually up, historically, 12 months following the white house changes hands. Regardless, we do expect to see some volatility.
Better Than Expected
At the end of October, we saw another 1% drop in the unemployment rate. At the end of September, reports were showing an unemployment rate of 7.9% and now it’s down to 6.9%, which was a move in the right direction. This proves that we are still making progress. One thing we’ll warn you about that we need to keep an eye on is that the long term unemployment amount within that figure is defined as being unemployed for six months or more. That part of the unemployment number is really starting to spike up. This is most likely one of the reasons that we are seeing, from a policy point of view, the Federal Reserve chairman, Jerome Powell, call for another stimulus. The Fed knows that when you get six months out unemployed, that really starts to get problematic for people. A lot of the dialogue you’re seeing from Mr. Powell is him trying to cut that off before it starts to be a more systemic problem that sparks a flame for trouble.
Most all earnings are in for the latest earnings season. From a COVID impact point of view, analysts had thought initially that the drop in earnings across the board, on average, would be about 21% lower than this time last year. However, it wasn’t anywhere close to that figure. Reports showed a drop of about 7.5%. Even though the earnings were down, they came in much better than analysts predicted. The economic numbers should start to become headline news now that the election is past us.
This past Friday the S&P 500 closed at 3,509, pushing our new resistance level to 3,590 and the new support level is now 3,430. This is important because this could possibly indicate a more bullish tone in the markets going forward with a possibility for a surge in momentum. There are no guarantees, but historically, trends leading into the election tend to hold past the election. One of the trends that we’re seeing right now is positive consumer sentiment along with a lot of good reports on earnings. We are looking to see, with the vaccine for COVID being talked about, if the consumer sentiment will hold through the remainder of the year.
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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Stock investing involves risk including potential loss of principal.
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