Welcome to this week’s edition of The Gate Market Update powered by The Cornerstone Financial Group. This edition will build upon many of the concepts spoken of last week.
As new data has come out Investor sentiment seems to be dropping greatly as student loan repayment is scheduled to resume. When stating that sentiment is greatly dropping, we mean that over 80% of the participants in a survey conducted by Jefferies said that they are concerned about paying their bills when student loan payments resume1. Of these participants, many mentioned plans for drastic drops in spending on items including clothing, restaurants, and other electoral items. This planned cut in spending demonstrates heavy strain in the consumers budget.
With many consumers planning to cut spending, small businesses may take a decent hit. Typically, the big fish (i.e., mega corps) will do okay with economic downturns even if they take a hit they tend to rebound just fine. However, small businesses often lack the bandwidth to continue operations if consumer expenditures slow.
For the past ten or so years, when business has been tough, small businesses have had the option of receiving cheap financing through low interest rate loans or lines of credit. With the current interest rates and the talk of “higher for longer” small businesses cannot attain such low-price financing. All this could culminate in creating the perfect storm for small businesses.
Additionally, according to the U.S. chamber of commerce, over 60% of jobs created come from small businesses. This means that even if the big fish stay strong, the average worker will be crushed by the hit on small businesses.
On a technical note, there has been a decent pullback for the S&P which reflects the declining consumer sentiment. Last week we had a significant breakdown beneath the 50MA but are being held up by the 61% FIB retracement zone as long as a yearlong trendline. Additionally, STO is showing that it is oversold which could cause a bounce in the short run. If this trendline doesn’t hold, my expectation is a drop to 4175 within the next month.
Consumer sentiment, harder lending environment, student loan payments resuming, and the technical breakdown, have caused us to cautiously hedge for the future as we await the outcome.
We do not fear in these circumstances, we simply position to win.
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1 Durden, T. (n.d.). Jefferies downgrades Nike, footlocker, urban outfitters as student debt payment restart set to spark spending pullback. ZeroHedge. https://www.zerohedge.com/markets/jefferies-downgrades-nike-footlocker-urban-outfitters-student-debt-payment-restart-set