Weekly Market Notes – July 27, 2020

Weekly_Market_Notes

For the Week of July 27, 2020

The Markets

Stocks fell Friday, ending a volatile week of trading and marking the first weekly decline in four weeks. Negative factors included rising concerns of another tech bubble, escalated China-U.S. tensions, worse-than-expected jobless claims and a new coronavirus milestone. Known coronavirus cases surpassed 4 million in the U.S. For the week, the Dow fell 0.74 percent to close at 26,469.89. The S&P lost 0.27 percent to finish at 3,215.63, and the NASDAQ dropped 1.33 percent to end at 10,363.18.

Returns Through 7/24/20 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) -0.74 -6.00 -0.53 9.71 11.24
NASDAQ Composite (TR) -1.33 16.10 25.82 18.61 16.58
S&P 500 (TR) -0.27 0.62 8.62 11.37 11.36
Barclays US Agg Bond (TR) 0.41 7.40 9.91 5.55 4.47
MSCI EAFE (TR) 0.41 -7.31 -1.00 1.65 2.75

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.

 

End of This Week — The extra $600 per week of federally funded unemployment benefits that was provided in the March 27 CARES Act ran out as of Saturday, July 25, or Sunday, July 26, depending upon the state of residence of the out-of-work individual. State-funded jobless benefits continue for at least 30 weeks in 46 of the 50 U.S. states (source: CARES Act, BTN Research).

Blame It on COVID-19 — Crude oil production in the United States has fallen from 13.1 million barrels a day as of March 13 (the day President Trump declared a pandemic-driven national emergency) to 11 million barrels a day as of July 10 (source: Department of Energy, BTN Research).

Last Month, Last Year — The U.S. government suffered an $864 billion budget deficit during June, i.e., $241 billion of tax receipts vs. $1.1 trillion of outlays. The U.S. government had a $984 billion budget deficit for the entire 2019 fiscal year (source: Treasury Department, BTN Research).

 

WEEKLY FOCUS – Making Things Easier for a Surviving Spouse

While it’s difficult to imagine, even the most devoted couple will eventually be separated by a death. That’s why it’s important to take steps to reduce your spouse’s burdens in case you die first. Here are some to consider.

If your Social Security benefits will be larger than your spouse’s, delay drawing them until you’re 70 in order to leave your spouse with a greater monthly survivor benefit. A widowed spouse can draw their deceased spouse’s benefits once they turn 60, but the benefits will be decreased by up to 28.5 percent if they don’t wait until their full retirement age. Survivor benefits do not increase by waiting beyond the survivor’s full retirement age.

Plan for a potential long-term care event by setting aside sufficient funds to pay for extended care without depleting your portfolio, or consider a special insurance policy or annuity with a long-term care rider.

Maintain your own credit cards to build strong individual credit scores. As an added benefit, most states don’t hold a widow or widower responsible for a balance on a card that only has their deceased spouse’s name on it.

Ensure your spouse will have immediate access to adequate cash – through their own bank account or a joint account. If you maintain a separate account, putting it in a trust or adding a beneficiary will make it easier for your surviving spouse to acquire it.

Keep records of financial accounts in one easy-to-access place, ideally, a safe or fire-proof metal box. Add estate documents or contact information for the law firm where they are filed, along with passwords and access codes to digital accounts. If you are the primary bill payer, include a list of what you pay and when and how. Make sure your spouse has the key or combination.

Invite your spouse to meetings with your attorney, financial professional and accountant, so they’re up-to-date on your finances and involved in planning for the future. If they prefer not to participate, place a list of your advisors and their contact information in your safe.

This year’s events have demonstrated the importance of planning for the unexpected. Give us a call if you’d like to review your emergency, retirement or estate plan. While we can’t provide legal or tax advice, we are happy to work with your attorney and accountant.

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* 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 July 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 3178041.1

Weekly Market Notes – July 20, 2020

Weekly_Market_Notes

For the Week of July 20, 2020

The Markets

Stocks were mixed Friday. Despite surging coronavirus cases, investors appeared relatively optimistic about potential vaccines for COVID-19 and a post-pandemic economic recovery. For the week, the Dow rose 2.32 percent to close at 26,671.95. The S&P gained 1.27 percent to finish at 3,224.73, and the NASDAQ fell 1.08 percent to end the week at 10,503.19.

Returns Through 7/17/20 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) 2.32 -5.30 0.44 9.80 10.76
NASDAQ Composite (TR) -1.08 17.67 29.64 19.75 16.35
S&P 500 (TR) 1.27 0.89 10.22 11.64 10.93
Barclays US Agg Bond (TR) 0.23 6.96 9.67 5.53 4.44
MSCI EAFE (TR) 2.20 -7.69 -1.00 1.51 2.36

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.

 

Textbooks Aren’t Always Right — Economic textbooks agree, creating too much money that chases too few goods will lead to inflation. But it did not happen after three quantitative easing programs in 2008-14. U.S. inflation averaged just 1.8 percent per year over the five years from 2015-19 (source: Bureau of Labor Statistics, BTN Research).

Still Down But Coming Back — As of March 27, the date the CARES Act was signed into law, total spending by American consumers was down 30.2 percent from total spending in the country in January. As of July 1, total spending by American consumers had rebounded and was down just 9 percent from total spending in January (source: Opportunity Insights Economic Tracker, BTN Research).

Where Did They Go? —The number of publicly listed companies, i.e., companies traded on an exchange, has dropped from 8,090 in 1996 to just 4,397 today (source: theglobaleconomy.com, BTN Research).

 

WEEKLY FOCUS – Potential Pandemic Positives

A crisis can leave us better or worse. As most of us long for things to return to the way they were before COVID-19, observers from various fields believe our lives may actually improve in some areas after the virus is controlled, such as:

Work: Many employers have been pleasantly surprised by the productivity of employees working remotely, and over half of teleworkers prefer working at home.1 Companies that allow more employees to work from home permanently will need less office space, reducing overhead. Eliminating geographical limitations will widen their pool of qualified applicants.

Business: As comfort with virtual meetings has grown, businesses will probably spend less on travel going forward. Recent supply chain disruptions have companies considering bringing manufacturing closer to home and using better software-based management. Since machines don’t fall ill, businesses will employ more automation – hopefully, retraining employees for new positions providing e-commerce related services or managing new machines or systems.

Technology: Technology use has exploded during the pandemic. Some governments, school districts and corporations are closing the digital divide by providing internet access to families who can’t afford it. This digital focus will undoubtedly persist and expand, with new tech hubs likely springing up around the country.

Healthcare: Doctors now provide a wider range of services virtually, saving patients time and allowing caregivers to participate more easily. Better digital solutions could connect information systems, enabling electronic records to follow a patient throughout their care journey. Researchers are using artificial intelligence to discover possible treatments and vaccines for COVID, which may create a path for future solutions.

Personal finance: Americans have learned to save better; CNBC recently reported the personal savings rate hit a historic 33 percent in April.2 Homeowners who refinanced will save for years to come. Before the pandemic, stocks were expensive. Lower prices could lead to higher future returns.

No one can predict the future, but problems often spur innovation, which leads to growth. In the meantime, we’ll do our best to prepare you for potential challenges and opportunities. If you have questions or concerns about our economic environment or your personal financial situation, don’t hesitate to call.

1https://www.aarp.org/health/healthy-living/info-2020/coronavirus-lifestyle-effects.html

2https://www.cnbc.com/2020/06/16/americans-appear-ready-to-shop-again.html

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* 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 July 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#3168740.1

Weekly Market Notes – July 13, 2020

Weekly_Market_Notes

For the Week of July 13, 2020

The Markets

Stocks rose Friday, and the NASDAQ reached a record high as investors weighed positive and negative headlines. U.S. coronavirus cases broke a record for a single day increase on Thursday while Gilead Sciences reported remdesivir, its experimental drug to treat the virus, significantly reduced fatalities. For the week, the Dow rose 0.98 percent to close at 26,075.30. The S&P gained 1.79 percent to finish at 3,185.04, and the NASDAQ climbed 4.02 percent to end the week at 10,617.44.

Returns Through 7/10/20 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) 0.98 -7.44 -0.52 9.34 10.66
NASDAQ Composite (TR) 4.02 18.95 30.77 21.07 17.57
S&P 500 (TR) 1.79 -0.38 8.53 11.66 11.18
Barclays US Agg Bond (TR) 0.42 6.71 9.51 5.59 4.48
MSCI EAFE (TR) 0.50 -9.68 -3.09 1.48 2.32

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.

 

He Said It — Scott Pelley of 60 Minutes asked Fed Chair Jay Powell on May 17, “Where does it (the new money flooding our system) come from?” Powell responded, “We print it digitally.” So as a central bank, we have the ability to create money digitally. And that actually increases the money supply (source: 60 Minutes, BTN Research).

Low Cost — The 2008-14 quantitative easing programs were designed to lower long-term rates for mortgages and other debt after the nation’s 2008-09 recession. It worked. The yield on the 10-year Treasury note and the average interest rate on a 30-year fixed rate mortgage both fell to all-time lows in 2012 (source: BTN Research).

Money Multiplier — When the Fed acquires assets from banks, e.g., Treasury securities, the Fed issues electronic credits to the banks in exchange for the assets. Banks can then use the money from the asset sale to make loans equal to 10 times the amount of money digitally created by the Fed (source: Federal Reserve, BTN Research).

 

WEEKLY FOCUS – Consolidating Retirement Accounts

Job changes can leave a chain of stranded 401(k)s under former employers’ plans until retirement. But that may not always be the best strategy. Consolidating can reduce paperwork and make it easier to balance investments, monitor their progress, plan a withdrawal strategy and update beneficiary changes. It may reduce administrative fees, which can add up over time, especially when factoring compound interest.  Consolidating may also qualify investors for price breaks based on asset and trading thresholds.

While employer plans often accept rollovers from previous accounts, it’s wise to weigh the pros and cons of rolling former employer accounts into a personal IRA. Many 401(k) administrators don’t dispense individual advice to ensure investors make optimal choices for their situations. IRAs usually offer more personal control and flexibility. Typically, 401(k) plans include a few dozen funds to choose from, while IRAs encompass thousands of investment choices.1,2

IRA accounts can also provide more freedom in passing on funds. Under federal law, surviving spouses automatically receive their deceased spouses’ 401(k)s – unless the survivor has signed a waiver. IRAs usually allow multiple or contingent beneficiaries. The SECURE Act recently eliminated stretch IRAs, which allowed children and grandchildren to take minimum distributions from an inherited IRA over their lifetimes. However, there won’t be any tax on Roth withdrawals.

On the other hand, 401(k)s carry some unique benefits. They are protected from all types of creditor judgments. Traditional and Roth IRA assets up to $1,362,800 are shielded from bankruptcy claims, but safeguards from creditors in other types of lawsuits vary from state to state. If you leave your job after the age of 55, you can take penalty-free withdrawals from a 401(k) account. The minimum age for withdrawing from an IRA without a penalty is 59½. You can take up to a five-year loan from a 401(k); an IRA only affords a 60-day, tax-free rollover option. (The CARES Act provides some exceptions for early withdrawals from 401(k)s and IRAs and increases 401(k) loan amounts in 2020.)

Of course, it’s crucial to consider potential fees and tax implications before consolidating. It’s particularly wise to consult a tax professional if your 401(k) includes employee stock, as special tax rules may apply. Our office would be happy to help you decide if consolidating your accounts would be beneficial and to help you weigh advantages and disadvantages of rolling 401(k)s into a personal IRA.

1https://401kspecialistmag.com/how-many-investment-options-are-in-the-typical-401k-plan/

2https://www.investopedia.com/articles/retirement/08/11-things-to-know-iras.asp

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* 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 July 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 3159789.1

 

July 2020 Monthly Outlook – Diagnosing a Recovery

As the world continues to deal with the effects of COVID-19, racial injustices and rising geopolitical tensions, recent data signal that the worst of the economic damage is likely behind us. Data show sequential improvement for most of the world’s key economies, a trend that will probably continue in the short term. Longer-term, there’s an emerging consensus for a quick and complete recovery, but I have a different view.

I believe that we’re past the cycle low for the economy and the financial markets, and that the recovery is under way. However, I suspect the speed and magnitude of the global policy response are responsible for the rapid transition into recovery mode.


Despite this, I caution people from making the wrong conclusions based on the massive scope of the global policy response, and I advise against annualizing temporary spending programs and one-time payouts. Some forms of temporary spending may become permanent, but I doubt government spending will double in size permanently. We are also going into a Presidential election cycle so cooperation in Washington is likely to be limited.

In short, I don’t expect a “V-shaped” recovery. I predict a “square root-shaped” recovery. Initially, a “V-shaped” and “square root-style” recovery will look identical. The early phase of the recovery, probably lasting through the summer, will be “V-shaped,” followed by a gradual rise in the fall and beyond. However, I expect momentum to slow after the initial reopening of the economy. The most recent GDP forecast revisions are now projecting that the economy will completely recover 2019 levels by 3Q’21.  I believe there is some long-term scarring to the economy, much of which won’t be evident immediately.

I don’t expect the economy to return to 2019’s GDP level until 2022. It usually takes several years for the economy’s post-recession recovery to return to its pre-recession pace. Growth rates may look nearly identical after the initial bounce, but as I watch economic activity levels, I see a path below pre-COVID levels for some time to come.

Figure 1: Illustrative Growth Paths for US Real GDP
(indexed to 100 as of 12/31/19)

CHART_7.2.2020

Source: Blackstone

Now with COVID-19 spreading again, this has caused several states to rethink how fast to reopen just as the first round of stimulus wears off.  The jump in daily cases has created some renewed volatility in the financial markets, and it merits watching, but it has yet to knock stocks off course. Ultimately, the path of the virus will play the biggest role in how the financial market and economic outlook unfolds going forward.

CHART_7.2.2020_2

Source: Strategas Securities

Most major stock market indexes are still negative YTD, with technology (NASDAQ) being the one winner.  I expect the broad stock market (basis S&P 500) to continue to move higher, albeit with increased swings up and down, to end the year flat at around 3,230 – around 4% higher than were it ended June.  I continue to adjust portfolios as I see threats and opportunities.

Table 1: Key Index Returns

 

MTD%

YTD%

Dow Jones Industrial Average

1.7

-9.6

NASDAQ Composite

6.0

12.1

S&P 500 Index

1.8

-4.0

Russell 2000 Index

3.4

-13.6

MSCI World ex-USA*

3.2

-12.7

MSCI Emerging Markets*

7.0

-10.7

Bloomberg Barclays US

Aggregate Bond TR

0.6

6.1

Source: Wall Street Journal, MSCI.com, Morningstar, MarketWatch

MTD returns: May 29, 2020-June 30, 2020

YTD returns: Dec 31, 2019-June 30, 2020

*in US dollars

 

P.S. Thank you for your referrals. They are making a big difference in my practice. Feel free to share my name with your friends on Facebook or LinkedIn.

I want to extend a special thanks to clients & colleagues who have recently referred us to family and friends:

Anna P.,    Ray C & Carolyn B.

 

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

  • July is National Picnic and National Parks month – please practice safe Covid-19 steps – crazy to have to say that

 

July 1st             Bureau of Internal Revenue (the IRS) founded in 1862– betcha nobody celebrates this birthday 

July 4th            Independence Day  – it will certainly be a different kind of celebration this year

July 11th          My daughter Ryan’s birthday

July 23rd         National Ice Cream Day   – Breyers vanilla with Hershey’s chocolate syrup is my go-to

 

I hope you find this information helpful.  Please share it with family and friends.

 

 

Sources:  Blackstone, Strategas Securities, Horsesmouth

 

 

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.