For the Week of June 22, 2020

The Markets

Stocks were up and down Friday as investors digested news of virus resurgences in pockets around the globe. At the close, the NASDAQ was up slightly, while the Dow and S&P were down. All three major indexes made gains for the week; the S&P achieved its fourth positive week in five. For the week, the Dow rose 1.07 percent to close at 25,871.46. The S&P gained 1.88 percent to finish at 3,097.74, and the NASDAQ climbed 3.74 percent to end the week at 9,946.12.

Not Inflation, But Deflation — The Consumer Price Index fell 0.1 percent on a month-over-month basis in May, the third consecutive month of negative inflation. The last calendar year in which inflation was negative, i.e., deflation, was 1954 (source: Bureau of Labor Statistics, BTN Research).

The CARES Act Effect — The nation’s 13.3 percent jobless rate as of May 31 (released on June 5) would have been an estimated 16.3 percent if the workers who were being paid wages from funds obtained through a Payroll Protection Program loan were counted as temporarily laid off instead of actively employed (source: Bureau of Labor Statistics, BTN Research).

Great Time to Buy — The average interest rate nationwide on a 30-year, fixed-rate mortgage fell to 3.15 percent on Thursday, May 28, the lowest ever recorded in U.S. history. That means home buyers would pay just $430 per month in principal and interest payments for every $100,000 borrowed (source: Freddie Mac, BTN Research).

WEEKLY FOCUS – Short-Term vs. Long-Term Crises

It’s difficult to address a long-term issue in the midst of an immediate crisis. With millions unemployed and news of firms going bankrupt because of COVID-19, the latest report on the health of the Social Security Trust Funds received little attention.

According to the report, Social Security’s costs will exceed its income beginning next year, and the fund’s reserves will be depleted around 2034. However, Andrew Saul, commissioner of Social Security, said the projections didn’t reflect the drop in payroll taxes because of lost jobs.

Countless solutions to address the shortfall have been proposed, but Congress has largely ignored them because most are politically risky. Here are a few basic ideas:

1) Raise the full retirement age from 67 (for those born in 1960 or later) to 69. In light of extended life expectancies, this seems reasonable for those who are able to keep working. But health issues already prevent many individuals from working until their full retirement age.

2) Either cut cost-of-living adjustments (COLA) for wealthy individuals or for everyone. But benefits already don’t keep pace with seniors’ rising expenses since the COLA is based on the general Consumer Price Index and doesn’t reflect the disproportionate rate at which housing, medical expenses and health insurance are increasing.

3) Increase payroll taxes for everyone. (Employers and employees each currently pay 6.2 percent of wages.) Or, raise the cap on earnings taxed by Social Security, which is now $137,700. Because benefits are capped at $3,011 at full retirement age, higher earners would not get more back.

4) Wait until Social Security’s reserves are depleted and cut benefits by up to 24 percent (the projected deficit after payroll taxes) or dramatically raise taxes. Since solving the shortfall will become more difficult as time goes by, voters should press their representatives to work on a better solution soon.

We all may face future circumstances beyond our control. But as the old adage says, “You do what you can do.” That includes prudently saving and wisely investing. Call our office if you’d like to review your retirement plan.

For the Week of June 15, 2020

The Markets

It was a choppy week on Wall Street amid fears of a second wave of coronavirus infections as states reopen and crowded protests continue. Stocks saw their worst sell-off since March on Thursday after Fed Chair Jerome Powell warned of possible long-term joblessness, but stocks rose Friday. For the week, the Dow fell 5.51 percent to close at 25,605.54. The S&P lost 4.73 percent to finish at 3,041.31, and the NASDAQ dropped 2.27 percent to end at 9,588.81.

Keeps Going Up — The S&P 500 had gained 43.4 percent (total return) through the close of trading on June 5, since falling to a bear market low close on March 23 (source: BTN Research).

Not Buying It — 39 percent of investors surveyed as of Thursday, June 4, were bearish on U.S. stocks for the upcoming six months (source: American Association of Individual Investors, BTN Research).

So Low — As of the close of trading on June 5, the yield on the 10-year Treasury note (0.91 percent) had been below 2 percent for 212 consecutive trading days, i.e., since Aug. 1, 2019, the longest stretch below 2 percent in U.S. history. The highest closing yield for the 10-year Treasury note in history was 15.84 percent on Sept. 30, 1981 (source: Treasury Department, BTN Research).

WEEKLY FOCUS – It’s Official

Since the March coronavirus collapse, stocks have bounced and plunged like a bungee cord ride that won’t seem to end. Chronic volatility has left many asking if we are in a recession, while jobless claims and business closings have caused others to wonder if we are in, or headed for, a depression. The confusion is understandable. Definitions for recessions and depressions aren’t exact.

A recession is a significant economic decline, usually over multiple months, typically caused by economic factors. For instance, the Great Recession from 2007 to 2009 started with the subprime mortgage crisis, which led to the housing market collapse and a banking crisis. In contrast, our economy appeared healthy prior to COVID-19, which created a slowdown in a matter of weeks.

A depression is an extreme recession with severe contraction that generally extends at least three years. The Great Depression started with a stock market crash in 1929 and ended around the time World War II started (1939). U.S. industrial production fell nearly 50 percent, and 25 percent of the workforce was unemployed. Near the end of the depression, safeguards were put in place to prevent similar devastation in the future.

Last week, the National Bureau of Economic Research (NBER) stopped the guessing when it announced the U.S. entered a recession in February. Although a recession is usually marked by two quarters of negative growth in domestic production (GDP), the NBER based its decision on rapid economic decline over a variety of factors, including GDP, real income, employment, and retail and manufacturing sales.

Still, there are reasons for hope. Since the recession was caused by the virus, many analysts believe the economy could recover quickly once effective means to combat it are found. And medical researchers are working round the clock to find them. The World Health Organization recently reported 124 potential COVID-19 vaccines are under development.1 And the Milken Institute’s tracker shows researchers are testing more than 130 drugs as possible treatments.2 In the meantime, The Federal Reserve has taken an array of measures to limit economic damage, and Congress has passed multiple stimulus packages, with more expected.

During these stressful times, we appreciate the trust you have placed in us, and we are available to answer questions or address concerns you may have.

1 https://www.cnbc.com/2020/06/09/dr-anthony-fauci-says-coronavirus-turned-out-to-be-my-worst-nightmare-and-it-isnt-over.html?__source=newsletter%7Ceveningbrief
2 https://www.sciencenews.org/article/coronavirus-covid19-accelerated-vaccines-treatments-drugs

For the Week of June 8, 2020

The Markets

Stocks rose sharply Friday after the Labor Department reported the U.S. economy added 2.5 million jobs in May and unemployment dropped to 13.3 percent – compared to an expected surge to 19.8 percent. Airline stocks jumped as the industry added more flights. For the week, the Dow rose 6.85 percent to close at 27,110.98. The S&P gained 4.96 percent to finish at 3,193.93, and the NASDAQ climbed 3.44 percent to end the week at 9,814.08.

Spending More — In April 2020, 45 percent of 1,008 adults surveyed said they increased their monthly spending while quarantined due in part to costs related to groceries and streaming services (source: TD Ameritrade, BTN Research).

Lots of Borrowing — By the end of fiscal year 2020, i.e., the 12 months ending Sept. 30, 2020, the U.S. Treasury anticipates it will have issued $4.5 trillion in new debt, more than triple the $1.28 trillion of new debt issued in fiscal year 2019 (source: Treasury Department, BTN Research).

A Jackson a Day — Retail sales in the U.S. in April were $403.9 billion, down 16.4 percent or $79.5 billion from just a month earlier. The monthly decline is equal to every U.S. household (124.4 million) spending $21 less per day during April than the dollar amount they spent per day in March (source: Commerce Department, BTN Research).

WEEKLY FOCUS – Mid-Year Reviews More Important Than Ever

Mention summer and most of us picture swimming, boating, camping, backyard barbecues and scenic vacations. In contrast, the summer of 2020 evokes many challenging and painful images due to our ongoing battle with COVID-19 and rising social unrest. But even when life doesn’t feel the same, it’s important to maintain normal routines to safeguard our personal and family’s well-being.

One routine that is more important than ever is a mid-year financial review. Reviews are particularly vital when situations change. While you may not have experienced a typical life event this year – a marriage, birth, move, death or job loss – current events and circumstances in our nation and throughout the world have likely impacted your financial plans in one way or another.

Social distancing has affected supplies, and consequently, prices. Economic concerns have reduced demand for other products and services, which may have directly impacted you or your community. Increased costs or reduced income could require adjustments to your business or personal budget. Or, you might want to help a family member in need.

If market volatility has altered the ratio of your investments, you may want to think about rebalancing your portfolio. In light of coronavirus-related legislation and rules changes, you might contemplate changes in your giving, health coverage, retirement plan or estate plan. While no one knows the future, some commentators expect eventual tax hikes to recoup massive stimulus spending to prop up the economy during the pandemic. So, you might consider a Roth rollover while taxes are historically low.

Along with considering updating your will or beneficiary information, reviewing your insurance coverage now can help you protect your assets. A disability or untimely death could cause financial hardship for your family.

Taking the time to periodically monitor, and if necessary, alter your plans will leave you in a better position to build financial security. While I do not provide legal or tax advice, I can work closely with your attorney and accountant to help ensure a well-rounded plan. If you’d like to schedule a mid-year review or you have questions about the market or how recent legislation impacts you, please give me a call. I’m here to help.

Securities America and its financial professionals do not provide tax or legal advice. Coordinate with your tax advisor or attorney regarding your specific situation.