Why Is The Market Strong?
How can the market continue to move up so strongly if we’re still seeing businesses closing as well as hearing a different negative report when it comes to the COVID virus? Why the market is still so strong? We’ve had numerous conversations with family and friends over the Thanksgiving holiday as well as clients, about how the market is showing so much strength but main street is continuing to hurt. There are a few reasons that make sense to see the market where it is. The Federal Reserve continues to remain accommodative with keeping the lower rates longer. They have been a huge driver of the market’s strength since April. The next thing is housing. The housing market continues to show a lot of strengths with people taking advantage of the lower rates. With a healthy housing market, that means a healthy economic report. The last thing is that there’s strength in corporate pockets. Corporate profits beat expectations in the third quarter of 2020. We are back to the level we saw in the fourth quarter of 2019. We realize the market is showing strength in all of these areas but there are still reasons to remain cautious. We are watching virus cases very carefully to see what happens in the next two to three weeks. Also, going back to 1950, we know that in the first two weeks of December, historically the markets are choppy. A lot of that usually has to do with tax-loss selling, so we are watching that carefully. No guarantees but the last two weeks of December are historically good.
A Business Perspective
Housing starts are at a 14-year high and as we all know, since 2008, the housing market hasn’t been very robust. That section of the economy is now proving to be a really strong component at the moment. Another area that we’re watching closely is how the management of corporations is handling the COVID situation. We follow a lot of data research and one company that we look at is PricewaterhouseCoopers. They do a lot of interviews with CEOs, CFOs, and other C-suite people that are running these large companies that some of our clients have their money in. About two weeks ago, they did a survey that basically asked management if we have more lockdowns due to COVID, how would they react and manage the situation. The majority said they were concerned but overall the overwhelming response was that they were more prepared for it this time. Back in late spring and early summer, the things that were impacted most were sales volume, locations, inventory control, and other things that impacted them on the balance sheet or income statement. Those things were all over the place, but they have all had a chance to plan for it if it happens again. They were all more confident if they had to go another round. Even if you have more lockdowns, it’s going to be smoother from a business perspective and the market is reflecting that as well.
Consumer Innovation
Another thing that is different now than it was at the beginning of this pandemic is the way consumers are making their purchases and how they are involved in the economy. Thanks to technology and the innovation that’s out there, they have adapted to the changes. For research purposes, we look at one index that is a good blend between manufacturing and the consumer. That index is at its highest expansion level since March of 2015. We’re hitting a high with what people are spending, particularly in manufacturing, even during a pandemic. The key is durable goods. The manufacturers were well up above the economic forecast in October for the durable goods manufacturing component. The numbers speak for themselves and they paint a picture that says we are doing well.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here
Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page 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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