Technical Analysis

Tomorrow marks the one-year anniversary of the market lows during the COVID pandemic. We have come a long way from where we were this time last year and we are finally starting to see some of the technical trends line back up with some of the historical data. This past Friday the S&P 500 closed at a price of 3,913. That gives a new resistance level of 3,960 and a new support level of 3,860. It is also important to note that the 50-day moving average is hovering around the price of 3,862. It is going to be important this week to watch, on a short-term basis, the fluctuation of the support level because it almost lines up identically with the 50-day moving average. This topic is one that we want to keep an eye on. Overall, it is encouraging that we are starting to see some of these sectors align back up with the markets like they used to.

Expectation vs. Reality

With fourth-quarter earnings in the books, analysts are starting to look forward to what the first-quarter earnings of this year will be. It is important to remember that when you look at earnings reports from companies, to look at earnings comparisons for the overall market. When companies report quarterly earnings, they are comparing it to the same quarter from the previous year. This year the first-quarter earnings estimates will be compared against the first quarter of 2020. The lockdowns of 2020 really did not hit their stride until April and the end of March was about the time when we started shutting down our economy. The first quarter of 2020, while it included normal months, was a rocky quarter overall. We are seeing very comparable earnings this year. A 20% increase in the S&P 500 is expected in the first quarter of this year in earnings over last year’s first quarter, and an 8.6% increase in revenue. Some sectors are even expecting a 70% or more increase in earnings growth over last year. These expectations are huge numbers. We hear a lot of pundits out there saying the market is expensive and that fundamentally, the market is overvalued. A lot of them are looking at what is called the price-to-earnings ratio. When individuals are quoting that the market’s expensive, they are taking the price of the market, like mentioned in the first section of this episode, and dividing it over the total earnings. When we are talking about earnings and some sectors potentially being up 70-80% and the overall stock market being up 20% year-over-year, if the earnings part of the price to earnings ratio skyrockets, it makes the market, which currently looks expensive, a lot less expensive on a realized basis. When we look back over the trailing 12 months, it is a rocky 12 months when comparing year over year. We are starting to sunset the first of our lockdown months in 2020 which will make the year-over-year comparisons start to look very strong. A lot of analysts are expecting us to exceed even those high expectations, which will be even more positive. It is good to start looking at fundamentals as we can sunset, what is hopefully being put in the rear-view mirror permanently, a very rocky and dark time for the markets, the economy, and a lot of individuals.

 

 

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

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