August 2020 Monthly Outlook – Running on Faith?

Running on Faith – are stocks discounting too powerful an earnings recovery?

Thanks to the grave uncertainty unleashed by the pandemic, nearly half of S&P 500 companies have withdrawn full-year earnings per share (EPS) guidance; so analysts have been flying a bit blind during the pandemic. About 130 of the S&P 500’s companies have reported second quarter earnings, and while weakness has shown itself in a few areas of the stock market; in general, earnings season has been better-than-expected. But we shouldn’t conflate better-than-expected with strong. Yes, 80% of companies have beaten analysts’ expectations (as per Refinitiv); but the expected decline in earnings for the second quarter is currently -40% (representing the blend of actual results for companies having reported and expectations for subsequent reports). It’s not a stretch—at least from my perspective—to think that the market’s move may be discounting too lofty a coming recovery in earnings.

In terms of valuations, the significant move up off the March 23 S&P 500 low has been a price/earnings ratio (P/E) driven surge; not an earnings-driven surge.  From a recent low of 13.1 on March 23, the forward P/E for the S&P 500 has surged to 21.5. That is getting eerily close to the P/E highs of the late-1990s into the market’s bubble peak in 2000, as you can see in the chart below.

8.3.2020_monthly_outlook_1

Source: Charles Schwab, FactSet, as of 7/24/2020.

 

Too much hype in too few stocks?

The Top 5 have ruled –  Apple, Microsoft, Amazon, Facebook and Google

8.3.2020_monthly_outlook_2

Source: Charles Schwab, Bloomberg, as of 7/24/2020.

 

Because these stocks are so dominating within the S&P 500, the index itself can close significantly higher at the end of a trading day even when most of the index’s stocks are declining. I do think there is a lot of risk of the aforementioned concentration.

The rally off the March 23rd Covid Crash low has been a three-act play.  Act I was led by Tech and Health Care and ran from March 23rd through mid-May.  Act II began when states started opening up again in mid-May and saw a rotation in the market into “re-open” stocks such as airlines, banks and industrial companies.  During Act III that began on June 8th and looks to have ended on July 20th, the S&P 500 was almost exactly flat.  This came during a period of rising Covid case counts around the country that caused “re-open” stocks to fall significantly while Tech and “Covid Economy” stocks led.  Because some of the most notable “Covid Economy” stocks are also the biggest stocks in the world, these names helped prop up the cap-weighted S&P 500 during Act III.  Underneath the surface, however, the market was very weak during Act III with the average stock in the S&P falling 5.7%.  So Act III was essentially a “flat” pullback if you’re looking for a way to describe it at the index level.

8.3.2020_monthly_outlook_3

Another concern is the continuing spread of Covid-19 around the country.  In March it was centered in the Pacific Northwest and the Northeast.  Since May, these areas have seen declines while the Southeast and Southwest have seen major spikes.  In the last couple of weeks, Florida and Texas are finally slowing the spread but now the Midwest is seeing an increase in cases.  Some of the increase in cases is due to better and more testing but clearly the virus is not being contained as states open up.  Perhaps more concerning than the increase in cases is the change in the trend of actual deaths from Covid-19.  As the chart below shows, deaths were on a steep decline from mid-April through mid-July, but have now started to increase alarmingly.

8.3.2020_monthly_outlook_4

These geographically shifting outbreaks of the virus and rising death counts have forced a slow-down of the re-opening of the economy.  This couldn’t come at a worse time as the benefits from the first government stimulus package expired at the end of July and Congress has not been able to agree on additional stimulus.  While I am certain Congress will get some kind of deal done (it would be political suicide to not) the longer they take, the greater the potential the economic recovery stalls out.

We remain cautious at this time but have been using pullbacks to phase back into stocks where appropriate.

 

August 2020 Calendar of Events   (comments and suggestions always welcome)

August is National Immunization Awareness Month – How ironic given the Covid-19 virus and the need for a vaccine.

 

August  8th        My birthday!

August 13th       International Left-Handers Day

August 16th      National Tell a Joke day – we can all use  some humor these days

August 26th       Women’s Equality Day – as the son of a single mom and the father of 3 wonder young women, I support improving equality for women in all areas.

August 26th      National Dog Day – shout out to all the dog lovers out there – woof!

 

Please stay safe and well.

 

Sources:  Charles Schwab, Bespoke Investments, CNBC.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 – 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.

Weekly Market Notes – June 22, 2020

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.

Returns Through 6/19/201 WeekYTD1 Year3 Year5 Year
Dow Jones Industrials (TR)1.07-8.220.058.8610.18
NASDAQ Composite (PR)3.7411.3925.8318.0715.50
S&P 500 (TR)1.88-3.197.9910.2510.22
Barclays US Agg Bond (TR)0.205.928.925.154.20
MSCI EAFE (TR)2.05-10.27-2.660.911.87
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.

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.

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 June 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#3134940.1

Weekly Market Notes – June 15, 2020

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.

Returns Through 6/12/201 WeekYTD1 Year3 Year5 Year
Dow Jones Industrials (TR)-5.51-9.200.948.9910.09
NASDAQ Composite (TR)-2.277.3824.3517.0414.96
S&P 500 (TR)-4.73-4.987.769.959.98
Barclays US Agg Bond (TR)0.725.719.425.164.27
MSCI EAFE (TR)-4.21-12.07-4.030.511.37
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.

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

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 June 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 3126082.1

Weekly Market Notes – June 8, 2020

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.

Returns Through 6/05/201 WeekYTD1 Year3 Year5 Year
Dow Jones Industrials (TR)6.85-3.908.7911.1711.42
NASDAQ Composite (TR)3.449.8730.9217.1915.42
S&P 500 (TR)4.96-0.2615.3111.6511.08
Barclays US Agg Bond (TR)-0.494.958.774.864.13
MSCI EAFE (TR)7.07-8.202.021.532.53
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.

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.

*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 June 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 3117037.1

June 2020 Monthly Outlook – Proven Wrong

Well it appears I have been proven wrong.

The stock market recovery from the 34% decline in March continued almost unabated in May.  The S&P 500 closed out May down 10.1% from the high on February 19, 2020 and down 5.8% YTD.  As previously reported, we had lowered equity exposure in portfolios during early March, when the Covid-19 impact was in full swing.  We have been slowly adding back equity exposure since mid-April, but our approach was cautious as our analysis anticipated the relief rally from the March low stalling out.  We felt the stock market was completely pricing in a “V” shaped recovery from the pandemic, but that the actual recovery would likely be slower and longer.  The stock market has proven me wrong, at least so far. In retrospect, we should have been adding back to equities more aggressively.  Hindsight is always 20/20, but this was a missed opportunity.

Going forward, there still remains opportunities and risks, for both the stock market and the economy.

For the market, the bulk of the recovery has been driven by a relatively small number of stocks.  Primarily, large technology companies like Amazon, Microsoft and Google. For example, as of the end of May, only 27.6% of all the stocks traded on the NY stock exchange (2,800 companies) are trading at or above their 200 day moving average, which is a good long-term trend measure.  That means that some 2,000 companies still have room to run, if stocks continue their upward move. Herein lies the opportunity.  On the worrisome side for stocks,  typically it is cyclical companies (think banks and industrials) that lead the market higher when stocks rebound from a bear market and recession—but not this time. While these 2 sectors have shown signs of life in the last week or so, they still are lagging far behind technology.  I will watch these closely as an indication of how the economic recovery is progressing.

On the economic side, recent economic reports appear to indicate that the worst of the pandemic-related economic shock is behind us.  However ‘not worse’ economic data is a long way from “good” economic data.  It’s telling that the nonpartisan Congressional Budget Office (CBO), often more optimistic than consensus, recently released new estimates showing that US GDP would not recover its prior peak until 3Q 2022. The opportunity is a health care breakthrough that would prompt faster re-openings, or more rapid and confident reengagement by consumers and businesses could bolster the economic outlook. Conversely, a second-wave, either near-term due to the re-opening of the economy, or during the fall when flu season returns would be a significant setback The risks to growth remain skewed to the downside in our view.

Source: Blackstone

Below is an interesting chart looking at the 3 key areas – Health, Economy, Markets – that highlights some of the key topics in each area that we are watching.

As we move into June, we will be continuing to selectively add to equity exposure, looking for opportunities with room for more upside.

Update on our office:  We are re-opening our office on June 2rd, using rotating shifts and appropriate social distancing measures. Thank you for your patience with us while we were all working from home. 

I hope this report is helpful to you.  Let us know if you have any questions.

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

  • June is LGBT Pride Month.  Let’s all work towards acceptance and inclusion of people regardless of their sexual orientation.

June 14th        Flag Day                  

June 20th        Summer begins – it’s certainly going to be a different summer.  Enjoy it safely       

June 21st        Father’s Day  – wishing all father’s, grandfathers, and great grandfathers a wonderful day.

Sources:  Blackstone, Schwab, Yahoo Finance

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 – May 26, 2020

For the Week of May 26, 2020

The Markets

Stocks were mixed Friday as investors weighed rising trade tensions between China and the U.S. and uncertainty about the pace of an economic recovery from the coronavirus. Frictions rose after China announced new security measures on Hong Kong and U.S. senators introduced a bill to sanction Chinese officials and agencies. Still, all three major indices posted weekly gains. For the week, the Dow rose 3.43 percent to close at 24,465.16. The S&P gained 3.27 percent to finish at 2,955.45, and the NASDAQ climbed 3.48 percent to end the week at 9,324.59.

Returns Through 5/22/201 WeekYTD1 Year3 Year5 Year
Dow Jones Industrials (TR)3.43-13.40-2.687.918.69
NASDAQ Composite (TR)3.484.3621.5816.2114.15
S&P 500 (TR)3.27-7.775.589.439.02
Barclays US Agg Bond (TR)0.355.2310.495.104.03
MSCI EAFE (TR)1.41-17.27-7.97-1.57-0.31
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.

Biggest Yet — The House released the $3 trillion, 1,815-page Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act on May 12. Congress has previously passed four bills between March 6 and April 24 to counter the economic impact of the COVID-19 pandemic (source: House of Representatives, BTN Research).

Student Loans — On page 1,400 of the 1,815-page HEROES Act is a provision that would forgive up to $10,000 of every federal student loan (source: HEROES Act, BTN Research).

We’ll Need to Borrow a Lot of Money — After seven months of fiscal year 2020, i.e., the 7 months through April 30, the government’s budget deficit to date is $1.481 trillion, more than the nation’s all-time record deficit for a single fiscal year of $1.413 trillion from fiscal year 2009 (source: Treasury Department, BTN Research).

WEEKLY FOCUS – Considering a Roth Rollover in 2020

Roth IRAs are popular because they have no required distributions, their earnings grow tax-free and withdrawals are tax-free, subject to certain requirements.  Income restrictions limit who can open a Roth, but since 2010, anyone – regardless of income – has been able to convert assets from a traditional IRA to a Roth IRA. Unique circumstances in 2020 have more investors now considering Roth rollovers.

Legacy planning: The SECURE Act passed last December increased Roth IRAs’ popularity in estate planning. The legislation eliminated the stretch IRA, which allowed children and grandchildren to withdraw money from an inherited IRA gradually over their lifetimes. Under the SECURE Act, non-spouse relatives must now drain an inherited IRA within 10 years. A Roth IRA can reduce the potential tax impact.

Tax rates: Historically low tax rates mean individuals rolling an IRA into a Roth this year could pay less taxes than in the past. This may not be true in the future as financial analysts expect taxes to eventually increase to recoup some of the trillions of dollars the federal government is spending under the COVID-19 stimulus packages.

Drops in stock values: Along with lower tax rates, converting an IRA to a Roth during a market downturn can reduce liability since taxes due are based on the value of the IRA at the time of conversion. If you convert when your IRA investments are depressed, your tax hit will be smaller. If your investments increase in value after the conversion, your gains won’t be taxed.

Decisions regarding Roth rollovers can be complex, and it’s best to consult a professional for advice. For example, a rollover might not make sense if your tax bracket may be lower in the future or if you need to use money from the IRA to pay the tax liability from converting. And calculating taxes resulting from a conversion gets particularly complicated if you own multiple IRAs, especially if some are pre-tax and others are post-tax, since the IRS will treat all your IRAs as one when calculating taxes owed.

Previously, IRA owners could change their mind about a rollover, but conversions are now permanent. So please call our office if you’re considering a Roth rollover this year. We’ll be happy to work with your tax professional to discuss considerations and options.

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

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 May 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#3100369.1