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.

Market Update – March 12, 2020 – Woeful Response

The financial markets, and people in general, are looking for strong leadership and an ambitious and coordinated response from our elected leaders.  Sadly, the response last night was woefully inadequate.  As my mother says – a day late and a dollar short.

I do expect Washington to wake up and do something significant to mitigate the economic damage.  The question is when do they finally get their act together and how big do they go.

As my note yesterday indicated, I am somewhat comforted by the fact that the US economy was in a very good position before the onset of the coronavirus.  I am starting to see positive signs of activity returning in China and South Korea. Once coronavirus worries start to subside and global economic activity improves, we will likely see stock prices moving higher. At this point, however, there is not enough evidence to suggest such a recovery is at hand.

We have officially entered a bear market today.  While very stressful, they are not uncommon, with the last one occurring just 18 months ago.  Also, bear markets in stocks do not always lead to recessions in the economy.  Of the last 16 bear markets, 7 have led to recessions, while 8 have not.  I keep this quote on my desk:

“For those properly prepared, the bear market is not only a calamity but an opportunity.” Sir John Templeton

 

I remain confident your financial plan has you properly prepared and that we will be able to take advantage of the opportunities that will be available when we get to the other side of the current crisis.

 

Try to remain calm, focus on your family and their health, and trust we are doing everything in our power to navigate your finances through this storm.

 

 

Sources: Ned Davis Research

 

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.

 

Update to my Outlook – Recession Risks Rising

The significant spread of the coronavirus around the globe is increasing the risks of a meaningful global economic slowdown, which could push the US into a recession later this year or early 2021.  Forecasting the economic impact of a previously unknown virus is nearly impossible. Add to that the recent oil price shock caused by a breakdown between OPEC and Russia and the market is trying to assess a dual threat to growth.

The Million Dollar question is will any recession be short and shallow or long and deep.  Given that the US economy was on pretty solid footing before the onset of the coronavirus, I expect it to be in the short and shallow variety.  One concern I have is the slow response we are getting from governments around the world in terms of fiscal and monetary policy.  As these policies generally have a lagging effect, the longer it is before they are implemented,  the greater the risk any recession becomes more painful.

March 9, 2009 marked the bottom of the last bear market and the start of an 11 year bull market.  I believe the stock market likely remains in a long-term bull market but we are likely looking at a cyclical bear market right now.   A piece of positive news for stocks is that cyclical bears within secular bulls tend to be less severe, and also tend to be shorter. The general definition of a bear market is a 20% decline from the previous high water mark on the S&P 500. As I am writing this (10:47am EST) the S&P 500 is down just under 18%.   During the current bull market we have already experienced 2 cyclical bear markets (April through October 2011 and September through December 2018).

Where is the bottom for the markets?  Bottoms can only be seen in hindsight, but generally there is a ‘bottoming process’ that can give us some insight.  They tend to follow a pattern of 1) hitting oversold levels; 2) rebounding; 3) retesting; and 4) triggering a washout in investor sentiment.  This process can take anywhere from a couple of weeks to several months. So far we have completed steps 1, 2 and 3  a couple of times over the last two weeks.  However, we haven’t seen the real washout in sentiment I want to see before feeling comfortable.

Market_Update_3.11.2020_3

I expect to see steps 1 through 3 repeating over and over again for the near future.  I could be wrong. but I think we are likely to retest the lows from the last bear market, which was 2,350 on the S&P 500 from December 2018.  That’s roughly 15% below where we are today.  As such, we continue to de-risk portfolios on the rebounds.  For those of you with investment accounts not under our management and/or employer retirement plans (401k, 403b) I suggest you consider lowering your equity exposure on any rebounds. You should consider taking 20-25% out of the equity funds in your account and putting that in the cash option – on the next rebound.  As you can see from the chart above, this will require you to pay attention on a daily basis.  Don’t adjust your future contributions – just lower the current balance in equities.  As always, consider your investment objectives, risk tolerance and time horizon in making any changes.

Assuming the coronavirus does not have a lasting impact on the economy, the coming monetary and fiscal stimulus, combined with a deeply oversold market and extreme pessimism, should ultimately help set the stage for a powerful rally like we saw in 2019.  We will let you know when we think it’s time to get back into the market.

Remember that your financial plan was constructed to deal with market volatility and the inevitable pullbacks.  Feel free to call me with any questions or concerns.

 

Sources:  Ned Davis Research, Bloomberg

 

 

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.