A Year in Review
Can you believe that we are coming upon the anniversary of when we were informed as Americans that COVID was in our country? In February of 2020, our technical indicators started showing us that market movement was acting different and volatility was picking up and we were trying to find out the reasons for that. On the weekend of March 13, 2020, our actions to get more conservative in February and on into March, started to pay off for our clients. On that same weekend, Chairman of the Fed Jerome Powell walked before the cameras on a Sunday afternoon and announced that he was taking interest rates to zero. This week, we want to relay to you where we currently are on this first day of March 2021, nearly a year later.
Interest Rate Spike
Last week we talked about how a spike in interest rates could cause short-term volatility which is what we saw at the end of the week as the market traded back to finish the month. The market was sparked by a spike in yields in the middle of the week which means volatility could continue in the short-term. Long-term markets have historically shrugged off higher rates and have been more reactive to the health of the overall economy and corporate earnings. One report that kind of got lost in the rate spike talk was the report on durable goods orders, which are items that are expected to last at least three years. In January they posted their biggest gain in six months. This is a great sign for the economy going forward. The Census Bureau reported that durable goods orders rose 3.4% which meant that the expectations of 1% were easily beat. It is an important report because orders have now returned to their pre-crisis levels. We will see the market come up and the economy try to catch up if these reports proceed to come in like they did last week. We look to that report because it reflects a healthy consumer and the overall economy, and it is important for that number to continue to increase. Here we are approaching the anniversary date of when this country and our markets started to really address the impact of COVID, and we are starting to see a lot of positive things take place.
Technical and Fundamental Analysis
We relied heavily on technical analysis in 2020 because the economic numbers and the earnings numbers did not match up. We had a support level of 3,800 last week and on Friday, the S&P closed at 3,810. For a short sample size, we saw more of a bearish tone in the market. Those numbers gave us a new resistance level of 3,880 and a new support level of 3,750. The reason this is important is because we did get close to that support level market of 3,800. Consumer spending rose 2.4% last month leaving a lot of people thinking it was a result of the new stimulus check that came out. This is the highest increase in consumer spending since June of 2020. Reports showed that the first stimulus check was added to people’s savings accounts instead of it being spent. We were not seeing much of it going back into the economy. Now with a 2.4% rise on that report, we are seeing a lot more people be comfortable with the way that businesses have been developing and evolving along with technology. The consumer is starting to get more confident in getting out and spending money, which turns into earnings for these companies. Going into the second quarter, we might see a lot better results with these smaller businesses along with the consumer which, overall, is a positive sign.
Positive vs. Negative News
One of the themes last week was inflation. Is inflation coming back into the picture? People are starting to see energy prices go up and they have some concern over that. At the same time, though, we fully believe that with technology and other things taking place, that inflation may not be the biggest debate going on right now. We think corporate earnings will continue moving forward. There are a lot of positive things taking place in the market and we want to bring that to your attention as you hear some of this negative news that is out there. We feel like we may see new opportunities become available. There will continue to be headlines showing uncertainty, but at the same time, there is a lot of positive news as well.
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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