Technical Analysis

The S&P 500 closed on Friday at 3,886 which gives us a new resistance level of 3,950 and a new support level of 3,800. We are starting to see, at least in the short term and intermediate term, a more bullish tone in the markets. One thing that we talked about last week and is also part of our conversation this week, is the price to earnings ratio for 2020. We saw these hit record highs. The reason this is important, from a fundamental standpoint, is that it could be a possible indication of an overvalued market. That is why it is important for us to look at both technical and fundamentals to compare the two and see how they complement each other.

Positive Earnings Season

After a rough end to January, the market showed a lot of strength last week to start February which has historically been on a volatile month. One of the main drivers of the market strength is the fact that the S&P 500 earnings continue to surprise by being on the upside. In the video, you will see a chart that shows more than 80% of companies beat estimates for the third consecutive quarter. Furthermore, the surprise ratio is greater than 17% which means that the average earnings are 17% higher than expected. It’s important to note that analysts have been slow to adjust estimates higher considering the economy is still struggling. We have another week of earnings reports to analyze, but so far so good with earnings season.

Anticipating the Future

The market will move ahead of the economy in anticipation of things to come. One of those things right now is the COVID-19 vaccine. There is a lot of speculation out there, as people are being vaccinated, that people will start getting back out and doing the things that they have been restricted from doing since the start of this pandemic. People may start to go back to restaurants, traveling, and spending money the way they used to before the pandemic. A lot of innovation has occurred including advancement in technology. Things have changed drastically such as online shopping and other things. The market seems to be anticipating that the vaccine will make a difference in these areas later in the year.

Global Impacts

Over the time of this pandemic, people have shrunk their networks, groups, and the number of people they see and talk to. Those networks became more local during the pandemic and because of that, it’s been easy to forget that the markets are globally interconnected. What happens overseas can have a huge impact on portfolios and markets here in the United States. If you look at the chart shown in the video, while we did have a major drawdown, the U.S. is the second-best performing economy in terms of GDP growth or lack thereof, globally. China led the way with the only major economy that is growing. If you look at the rest of the developed world such as France, Italy, and the U.K., those economies shrunk at nine-plus percent. Italy is having a lot of unrest due to their government completely collapsing. There is a lot of uncertainty and a lot of anger due to youth unemployment. In Italy people between the ages of 15-24, which is more than one-third of the population, are unemployed. It has caused a lot of angst and frustration. As we reopen, we are going to see that a lot of things were put on pause and there is some uncertainty in the world. We have talked for years about Brexit which is the British economy leaving the European Union. Will that be the beginning of a trend where more countries look to leave? A lot of these COVID issues have made people focus on internals. As we reopen, we could start to see that the uncertainty, distrust, and unhappiness from overseas possibly cause economic troubles. They may cause market hurdles going into 2021. Even though we have left 2020, the problems that were created in that year will be hitting us for a long time.

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

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.

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