One thing that a lot of people have been waiting for is the second round of stimulus. Congress finally agreed on the $900 billion stimulus program over the weekend. This will help a lot from the standpoint of healthcare relief and small businesses. Another huge topic to discuss is that we are starting to see some results from the vaccine being given to healthcare workers. Starting off 2021, they are talking about the vaccine becoming available to individuals. This could create some positivity in the markets as more of the vaccine news evolves going into January.
On this past Friday, the S&P 500 closed at 3,712. That creates a new resistance level in the market of 3,770 with the support level at 3,640. Why does that matter? We are looking at these numbers in comparison with consumer sentiment going into the new year. With a second stimulus being rolled out and positive vaccine news, it seems to be creating a bullish tone in the markets. We are watching this trend to see if this momentum will continue and if consumers start to put more money into the markets.
The Dow Jones Industrial Average is sitting at a record high of over 30,000, the S&P 500 is over 3,700, the NASDAQ is at 12,756, and here we are in a world of COVID with all these new dynamics taking place in the economy. Everybody is very excited about the second round of stimulus checks and we are thrilled that it will go to consumers that need the money. We’re going through an innovation disruption right now. If you go back through the years and look at our previous vlogs, we’ve talked about how business models were going to change. Just this year, we have seen a decade of change take place. What we had projected would take place in 2030 is taking place now. Back years ago, we talked about how Amazon didn’t own any stores and here we are today with Amazon forcing Walmart to change their whole business model to compete. We talked about how Netflix did not own any movie theaters and now movie theaters are struggling in this COVID environment. We talked about how Uber did not own any cars and at the same time here we are in 2020 with transportation changing. Tesla has come out with the electric car and is also challenging General Motors and other companies in a way that they are having to reinvent themselves. Airbnb has changed the dynamics of the hotel industry and the entertainment industry is having to change. There has been an impact on airlines and much more. The point being is, the stimulus will put money back into the economy and help struggling consumers but simultaneously, we’re seeing business models reinvent themselves, new careers coming about, and people having to rethink how our economy works and how we move forward. There was a very similar situation back in the 1920s when people had to rethink the business models.
We are continuing to receive a lot of questions from clients and business partners about how the market is continuing to show strength even though there has been a spike in virus cases and more lockdowns. We are also continuing to see economic weakness in the jobs market and consumer spending. How much longer can the market strength continue? Research done by our partner, LPL Financial, who addressed this topic in their 2021 market outlook, shows that it’s good news for market participants. In reviewing some of the previous major bear market lows, most recently being in March of 2009, reveals that stocks tended to add gains well after the initial surge. Typically, the second-year gains following a decline of 30% or more continued to be strong, averaging an additional 24% and none were negative going back to 1970. While there are reasons to still be cautious and as always, no guarantees, we like the historical relevance of the market continuing to show strength to finish off 2020.
Mergers and Acquisitions
We have seen a record flow of mergers and acquisitions activity with companies. This activity could be a catalyst to boost the market as we are starting the new year. If companies go private or take stock off the market, that reduces the supply of stock and could push prices higher. Already in the fourth quarter of this year, we are looking at an announced $532 billion worth of M&A activity with still two weeks left to go. This has been the fifth best quarter since 2015. That is a lot of strength going into the end of the year. These numbers reflect announced deals, meaning they would still need to close early next year. That could be supportive of the market as the combined companies take stock off the market and push enthusiasm and supply and demand imbalance more in line with higher prices.
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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