Update On Current Times

Dear friend,

I hope this finds you and your loved ones safe and well.

We have been told by our health care officials to prepare for the next few weeks to grow “worse before it becomes better”.

Less important but, in a similar way, so will the stock market reaction.

Your March 31 statements will be arriving soon and they are not going to be pretty. However, as we have talked about before:

Current values are not relevant values unless you need the money now.

We have made adjustments to significantly reduce risk in your portfolio until we see clear skies again.  Additionally, many of you may have income programs and other protections in place.

We may have talked recently but if you want to talk again please let me know.

I leave you with these following thoughts that I subscribe to:

o        We have decided to be guided by history as opposed to headlines. Invited by the media to subscribe to the thesis “This time it’s different,” we respond instead “This too shall pass.”

o        My mission continues to be: not to insulate you from short to intermediate-term volatility, but to minimize your long-term regret. The best way I know to do that is by encouraging you to stay the course on your long-term plan.

o        In my experience, all successful long-term investors are continuously acting on a plan. All the failed investors I’ve ever encountered were continually reacting to current events – and always the wrong way.

o        In politics, the short term is crystal clear, and the long term is murky. In the stock market, the short term is murky, but the long term is crystal clear.  While the near-term is quite uncertain, I remain confident in the long-term resiliency of us all.

Be safe and stay well.

Jim & DWM team

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

April 2020 Market Update – Trajectory

Following up on my 3/31/2020 note on the CARES Act here is a link to IRS information on how to receive your stimulus payment     https://www.irs.gov/coronavirus  NOTE:  The IRS will NOT call you about direct payments.  Any calls you receive are scams.

We are in a new world that has 3 inter-related parts –  Healthcare, Economic, and Financial.

On the healthcare front my biggest concern is the trajectory of the spread of Covid-19 here in the US.  “Current U.S. trends are concerning, suggesting a course potentially worse than Italy. “We highlight five dynamics to watch [which we] believe suggest the U.S. is facing a broad and accelerating outbreak.” (Morgan Stanley Biotechnology analyst)

  1. U.S. cases are growing the fastest globally
  2. U.S. mortality is not slowing despite social distancing
  3. New cases are growing faster than testing capacity
  4. New ‘hot spots’ are exhibiting growth above other regions
  5. U.S. social-distancing measures remain less strict than those of other countries

“We would highlight that the biggest risk to this forecast is that while we have reasonable confidence the East and West coasts will reach peak cases in the next 2-3 weeks, the interior of the country is now exhibiting signs of new outbreaks.” (Morgan Stanley)

This is a scary and sobering outlook.  While I pray the trajectory shifts from blue line in the chart on the left to the pink line, my outlook is based on the red line.

On the economic front, my biggest concern is the longer it takes to get the virus under control, so the economy can open back up, the greater the possibility of significant and potentially permanent damage to the economy, both here in the US and globally.  Here, I am praying for a path that follows the dark blue line, but my outlook is based on the light blue line. This would have us in a recession until the end of 2021.

4.1.2020_Monthly_outlook_3

Source Blackstone

On the financial front, the Federal Reserve and the US government are taking extraordinary steps to support the financial system.  Only time will tell to what extent these actions succeed in limiting the damage.  From an investment perspective , I believe we are in the eye of the storm.  We had the initial damage when the storm first hit in early March. We are now in a period of relative calm, but I expect the storm to swing back around and create more damage.

Using history as guide, I expect we will likely retest the lows in stocks from mid-March, which would be a 15% decline from where we ended March.   It is also conceivable we could go even lower if the virus drags on and the economy remains shutdown longer. “Waterfall declines – Stocks have broken the initials lows of a waterfall decline almost 70% of the time by an average of 7.2%”  (Ned Davis Research)

4.1.2020_Monthly_outlook_4

Right now I believe the market is somewhere between fear and panic (see chart below).  When it comes to your portfolio, I have to weigh the risk of going back into stocks too early, with potential for some additional downside, against the risk of going back in too late, with the potential to miss some of the recovery.  Catching it right at the point of maximum financial opportunity is virtually impossible, more so in these uncharted waters.  Please reply to this email (or give me a call) to let me know your thoughts on going too early or too late.

4.1.2020_Monthly_outlook_5

As always, we continue to monitor your portfolio and the market/economy continuously.

April Calendar of Events   (comments and additions for future months are always welcome)

  • April  is National Autism Awareness month.  Let’s all get educated on this issue and works towards acceptance and inclusion of people dealing with autism.

April 9th                       Passover begins – Chag Pesach Sameach

April 10th                     Christian’s wife Maecy birthday

April 12th                      Easter Sunday – Have a blessed and Holy Easter

April 12 & 13th            We adopted our 4 legged children Coco (2010) and Buddy (2013)

April 15th                     Tax Day.  Remember to make those IRA or Roth contributions.  NOTE:  Tax day extended to July 15, 2020!

April 22nd                     Earth Day – let’s all recycle, turn out lights when we leave rooms, and do all we can for our environment

April 25th                     My daughter Satya’s birthday – wow she is turning 35!  I must be getting old 😊

Sources:  Ned Davis Research, Oppenheimer Investments, Blackstone, Morgan Stanley Research, Westcore Funds

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

CARES Act – Coronavirus Aid, Relief, and Economic Security Act

I hope this note finds you and your loved ones safe and well.

On Friday March 27, 2020 the CARES Act became law.  This legislation is aimed at providing relief for individuals and businesses that have been negatively impacted by the coronavirus outbreak. Here’s a look at some of the key provisions included in the bill and what that may mean for you:

  • Direct payments: Americans who pay taxes will receive a one-time direct deposit of up to $1,200, and married couples will receive $2,400, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples.  This will be based on your 2019 income tax return or 2018 if you have not yet filed 2019.  The payments should be direct deposited into the bank account you used on your tax return or a check will be mailed to your home.  For those receiving Social Security benefits, the payment should be directly deposited into the bank account where your SS benefit is paid.
  • Unemployment: The program provides $250 billion for an extended unemployment insurance program and expands eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. It also extends UI benefits through Dec. 31 for eligible workers. The deal applies to the self-employed, independent contractors and gig economy workers. For anyone whose employment has been impacted, you should file for unemployment as soon as possible. Here is link to NJ https://myunemployment.nj.gov/  and NY https://labor.ny.gov/ui/how_to_file_claim.shtm
  • RMDs suspended: Required Minimum Distributions from IRAs and 401(k) plans are suspended.  For those who can afford to not take their RMD (or take a lower amount) I would encourage you to consider doing that.  It will leave more capital in your retirement account to participate in the recovery.  Feel free to call me to discuss.
  • Use of retirement funds: The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to Jan. 1. Withdrawals are still taxed, but taxes are spread over three years, or the taxpayer has the three-year period to roll it back over.  This should be a “last resort” step.
  • 401(k) Loans: The loan limit is increased from $50,000 to $100,000.  This is also a “last resort” step.
  • Student Loan Payments: Borrowers can request to delay payments on federal student loans until Sept. 30, 2020.1 All federally-owned student loans will automatically have a 0% interest rate until then. Contact your federal student loan servicer to request forbearance. This does not apply to private student loans.

The IRS also announced the delay in 2019 income tax deadline from April 15th to July 15th.  This applies to both filing your return as well as making any payment due.  If you feel you are entitled to a refund I encourage you to still try to file your return now (assuming your tax preparer is available).

There are several provisions for small business owners in the CARES Act that I will address in a separate note.

As more information on this legislation and any future legislation is available I will share it with you.

Also note the IRS will NOT call you about this. Any call you receive is a scam.

Jim

 

Soruces: Forbes.com, TheBalance.com

 

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

Weekly Market Notes – March 30, 2020

Weekly_Market_Notes

For the Week of March 30, 2020

The Markets

Following three days of big gains, stocks slid across the board Friday amid news of a sharp spike in confirmed coronavirus cases. Johns Hopkins University reported the U.S. had 85,000 confirmed cases – the highest number in the world. Despite Friday’s losses, the Dow achieved its best weekly percentage gain since 1938, and the S&P attained its best weekly percentage gain since 2009. For the week, the Dow rose 12.84 percent to close at 21,636.78. The S&P gained 10.28 percent to finish at 2,541.47, and the NASDAQ climbed 9.06 percent to end the week at 7,502.38.

Returns Through 3/27/20 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) 12.84 -23.72 -13.48 4.16 6.67
NASDAQ Composite (PR) 9.06 -16.18 -0.79 9.88 10.17
S&P 500 (TR) 10.28 -20.96 -7.59 4.83 6.44
Barclays US Agg Bond (TR) 2.66 2.67 8.26 4.64 3.29
MSCI EAFE (TR) 11.22 -23.55 -15.15 -2.13 -1.02

Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond, NASDAQ and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. (TR) indicates total return. MSCI EAFE returns stated in U.S. dollars.

 

Gone — 22 million workers worldwide lost their jobs as a result of the 2008 global financial crisis. Global job losses driven by the coronavirus pandemic are projected to be as few as 5.3 million (assuming swift and coordinated actions to contain the virus) to as many as 25 million (source: International Labor Organization, BTN Research).

Almost Interest-Free Cash — The Federal Reserve implemented its second emergency rate cut this month on March 15, effectively pushing short-term interest rates to zero. At the latest emergency meeting, the Fed also cut the reserve requirement for thousands of U.S. depository institutions to zero effective Thursday, March 26, permitting easier lending by banks (source: Federal Reserve, BTN Research).

Big Gain, Big Loss — The U.S. stock market lost $12.1 trillion of value from the close of trading on Feb. 19 to the close of trading on Friday, March 20. The U.S. stock market peaked at $36.1 trillion, having gained $28.5 trillion during the 2009-20 bull market through Feb. 19 (source: Wilshire, BTN Research).

 

WEEKLY FOCUS – Positive Steps to Combat COVID-19

Negative headlines have pervaded our consciousness since the stock market crash began on March 9 and the World Health Organization declared COVID-19 a pandemic on March 11. And, they continue to abound as confirmed cases multiply across the U.S. But there is still encouraging news to be found.

In a CNBC interview last week, Ben Bernanke, who served as the Federal Reserve Chairman during the 2008 financial crisis, predicted the coronavirus would cause a very sharp recession, but he expected a fairly quick recovery if we are able to effectively combat the virus.* The nation is now social distancing to slow the disease’s spread and create a preventative vaccine. Dozens of vaccines and coronavirus treatments, including existing drugs used for other illnesses, are being tested. Some anecdotal evidence appears promising.

Companies are stepping up. Last week, Ford Motor Company announced it is teaming up with 3M and General Electric to produce air respirators, ventilators and 3-D face shields. Other auto makers have also offered to help. Apple will donate 10 million face masks to relief efforts. Facebook, Tesla and other companies are following suit on a smaller scale. Several garment manufacturers plan to start producing face masks.

Cisco, Bank of America and JP Morgan have pledged $250 million, $100 million and $50 million respectively to address health and economic impacts. Many other corporations are making gifts to their communities or providing aid or extra benefits to employees. Despite 3.28 million new claims for unemployment in mid-March, Walmart, Amazon, Lowes, drug stores, groceries and others plan to hire 435,000 employees.

The Federal government is taking measures to reduce economic hardship until companies can resume normal business activities. In addition to actions by the Federal Reserve and legislation Congress passed earlier this month, Congress just passed a $2 trillion stimulus, which President Trump signed on Friday. The 880-page bill includes lending measures and economic policies to support small businesses, industries, taxpayers and the unemployed.

While there are reasons for hope, the unknowns we currently face are stressful. We appreciate the trust you have placed in us, and we are available to answer questions or address concerns you may have.

*https://www.cnbc.com/2020/03/25/bernanke-says-this-is-much-closer-to-a-natural-disaster-than-the-great-depression.html

DWM Plan Well logo

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright March 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#3018274.1

Market Update 3-26-2020 – Was That The Bottom or Just A Bounce?

First, I hope this note finds you and your loved ones safe and well.

The financial markets, especially stocks, have rebounded sharply over the past 3 days.  This came on the heels of the fastest ever bear market decline in history.  So the question is – was that the bottom?  It was certainly “a” bottom but was it “the” bottom?

While this situation is different than the 2008-2009 financial crisis, or the 2001 Dot-Com bubble, or any other major market decline in the last 50 years,  I think it is instructive to look at history.  In each case, the stock market ultimately did find a bottom and then go on to, not only recover the decline but grow to new record highs.  However, the ultimate bottom of the decline occurred only after several rally attempts failed.

In 2008 the S&P500 fell 36% (1) before seeing about a 25% bounce (2) very quickly.  This was then just as quickly given back and the low was retested later in October (3). Then that led to another ~20% bounce (4) into November before a subsequent drop and a new low was made (5). The market rallied almost 30% into the new year (6) but then sold off ~28% into what was ultimately THE low in early March (7), some 56% below the level when the initial decline started.

Here in 2020, the S&P500 fell 35% from Feb 19, 2020 to the low just 2 days ago.  Over the past 3 days the market has bounced up 17%.  Mark Twain is noted for saying History doesn’t repeat itself but it often rhymes.

So what happens from here?  Could we follow the pattern from 2008-2009 or could we follow the pattern from the fall of 2018, when the S&P500 declined some 20% in 2.5 months then bounced and never looked back?  I would surely love a repeat of late 2018 but I believe the higher probability is something similar to 2008-2009.

The answer depends on when the growth rate of new COVID-19 cases peak and will the fiscal and monetary policy response be enough to mitigate the health and economic damage globally.

We are likely at least several weeks away from the peak rate of change in either COVID-19 cases or the resulting economic distress. Some lower lows may well lie ahead in the coming weeks/months. We continue to monitor the situation daily and adjust accordingly.

Feel free to call us with any questions.

Jim & DWM Team

Source: Fidelity Investments, Saut Strategy, Capital Group

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

Bond Blues

Bonds are viewed as investors’ safe money, and with good reason. The graph below shows that since the inception of the Bloomberg Barclays U.S. Aggregate Bond Index in 1976, there have only been 3 calendar years in which the Index had a negative total return—the worst of which was in 1994, which experienced a negative return of -2.92%.

This doesn’t mean that there haven’t been periods of time when bonds have struggled—there certainly have been. During times of panic, bonds can be scary, too. This was happening over the last two weeks. This was similar to the panic selling during the 2008-2009 financial crisis, and again in the energy driven sell-off in corporate bonds in 2015 and early 2016, and in the fourth quarter of 2018.

In our opinion, investment grade corporate bonds and high-quality municipal bonds have been sold in order to calm panicked investors’ frayed nerves. In essence, investors have thrown the baby out with the bath water.

This week the bond market has returned to more normal behavior. There are two reasons for this, (1) the Federal Reserve announced on Monday 3/23/2020 a massive monetary package to support the bond market, and (2) most of the over-leveraged hedge funds and institutions that were selling over the last 2 weeks appear to have cleared their trades.

We believe the current dislocations in the bond market are behind us, and that bonds will continue to provide income and will slowly return to fair value.

market_update_3.25.2020

Source: Clark Capital Management

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful. Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice. You should discuss any tax or legal matter with the appropriate professional.

Market Update – March 16, 2020 Historic Situation

We, the entire world, are facing a historic situation. The soundness and safety of our lives and those of our friends and families is threatened in a fashion which is uncommon in our history though not unprecedented. Decades ago, the Spanish Influenza and the polio epidemic, and more recently SARS, H1N1, MERS, Zika stand as examples where we have pulled together to not only survive but ultimately conquer the threat to our common welfare.   The chart below shows stock results during several medical shocks over the last 40 years.

Market_Update_3.16.2020

The Federal Reserve cut rates on Sunday night to basically zero, and announced a $700 billion Quantitative Easing (QE) program.  The Fed is also coordinating with the Bank of England (BOE), Bank of Japan (BOJ), European Central Bank (ECB), and the Swiss National Bank (SNB) to boost liquidity globally. This coordinated approach by monetary authorities is a big positive.

Now it’s time for policymakers to get their act together.  Monetary policy alone is not enough, and a coordinated fiscal policy is needed to stem the economic deterioration from the Coronavirus response.

The markets appear to be pricing in what is known (economic and earnings slowdown) and what is feared (unknown number of coronavirus deaths and economic recession/depression). Identifying an exact bottom in the markets is nearly impossible, but much like in December 2018, the market seems very oversold. Until the spread of the disease is arrested, we will be in uncharted waters as to the length and severity of the human and economic impact. We expect continued volatility in the markets in the short-term. As such, we continue to de-risk portfolios. We remain hopeful the current situation is temporary, will reverse once the virus is under control,  and will not have long-lasting effects.

We take solace that our planning and investment process has dampened the impact for our clients. We renew our commitment to always do our very best for you. Together, we can navigate this historic situation.

We encourage everyone to remain positive and practice prudence for the protection not only of your health and that of your family and friends but also for our neighbors and communities.

 

Sincerely,

Jim and everyone at Directional Wealth Management

 

 

Sources: Guggenheim Investments, Clark Capital Management, Transamerica

 

 

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.