Technical Analysis
We think it is important to carve out some time during the vlogs, weekly, to give you some important data from a technical analysis standpoint. Early last week, we saw the markets pull back but then came a slight surge towards the end of the week that ultimately led us to Friday’s S&P close price of 4,173. That makes the new resistance level 4,200 and the new support level 4,150. The year-to-date moving average is currently sitting at 3,961. This year-to-date moving average price could potentially, from a long-term standpoint, start to mold into either the floor of the market where it will continue to build, or it could possibly develop into a “ceiling” for the market. This is one thing we want to continue looking at to try and analyze what the markets will do moving forward.
The Good and Bad
Over the last month or so, we have had a phenomenal reporting season of earnings for the first quarter of 2021. Over that time, the market’s been relatively flat. You really can’t get much better than the earnings season we have recently had so why is the market flat? It’s because the market does not price using the rear-view mirror but instead, it prices looking forward into the future. We received a good report from one of our research partners that is shown in this video. The report included a chart of the growth expectations and how they changed from April 1st to the end of last week. The earnings expectations for the first quarter, which we are 90% through earnings reporting for the first quarter, went from a growth rate of 24% up to 50%. The earnings for the first quarter, on the S&P 500, are going to be up 50%. That is a phenomenal growth rate until you look at the second quarter and you realize that earnings are expected to grow at an additional 60%. So, we are looking forward to the next few quarters with very strong numbers. When you look out through the third and fourth quarters the numbers are not as strong, but they are still positive, in the double digits, and getting better. Earnings were already expected to grow in double digits but looking at the blue line versus the red line on the chart shown in the video, the expectations are moving higher each quarter all the way through 2021. So, 2021 is shaping up to be very strong for markets and something we really needed to analyze to decide whether this market is setting a base to build off or a ceiling, which could be a hindrance to further growth. Based on earnings, it looks like we are building a very strong floor to grow off. You cannot predict the future, obviously, but it helps to look past the current into the near future and beyond. When doing so, one of the concerning issues is the first quarter of 2022. Expectations predict that there will be a drop in the growth rate from 16% down to 2%. A lot of the growth that we are expecting in 2021 may have pulled forward some of the 2022 earnings, which is something to consider. Maybe the market is starting to price in expectations of what has been a fiscal tailwind of stimulus and Fed policy. It could potentially become a headwind of higher taxes and higher interest rates or even potential inflation. Inflation hedges through prices rising. We have not necessarily bought into all of that quite yet, but the market looks forward so this is something we need to start looking at and not just the next four quarters. We want to be ahead of the market when it comes to our clients and their plans. Currently, we think the market is building a good floor to build off and not building a ceiling to restrict future growth.
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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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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