May 2021 Monthly Outlook – Managing Risk – Dangerous Leap

“Risk is good. Not properly managing your risk is a dangerous leap.”  – Evel Knievel

We believe the strategic case for risk assets remains favorable, with ongoing support from: 1) economic reopening and normalization, 2) fiscal support, 3) pent-up savings, and 4) historically easy financial conditions. As we move into the post-COVID-19 world, we believe the recovery will be non-linear and the opportunity set highly dynamic.  We expect the economy to show superior growth for the balance of 2021, while the financial markets have already priced in a good deal of this growth.  The financial markets will need to contend with the potential for rising inflation driven by the economic growth and the potential for the FED to reduce monetary accommodation to fight inflation.   Come 2022, we expect economic activity to fall back into a normal range of 2%-3% per year. 

Chart of the week
Source: Goldman Sachs Global Investment Research and GSAM SAS Market Strategy

On the investing front, we are on alert as despite a barrage of positive economic data recently and amazingly positive corporate earnings reports, there has been a  pattern of sell-the-news profit taking in the past two weeks of April. It also comes at a time when defensive assets are showing relative strength compared to growth assets. The move isn’t large enough to break through recent support, but it was significant enough to establish a divergence between the movement of major market benchmarks and their volatility measures. This kind of price movement is typical when markets are faltering near highs. It implies that institutional investors often want to quietly slip out of their positions before the demand for stocks becomes too weak and creates a rush of sellers.  

The chart below shows that the S&P 500 Index and the Nasdaq 100 Index, have both showed a subtle pattern of higher highs over the past two weeks. Meanwhile, the Cboe Volatility Index (VIX), and the Cboe Nasdaq Volatility Index(VXN) are showing a pattern of higher lows (they should be showing a pattern of lower lows). This makes a subtle implication that market makers are a bit worried about the potential for falling prices.

That seems incongruous given the excessively positive data from both the private and the public sector that the economic recovery is progressing rapidly. But this is the kind of clue that experienced investors look for. When price action doesn’t follow what seems to be obvious for a given narrative, then we start to wonder if a larger, less obvious dynamic is building. It may not materialize into a full blown change of trend, but if it does do so, this is the kind of subtle warning the market might give.

Source: Investopedia

Therefore we have tightened our risk management thresholds while simultaneously shifting our portfolio allocations into areas that continue to show strength.

We hope you find this report informative.  Feel free to call us with any questions or concerns.  Please share this report with anyone you feel will benefit from it.

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

·      May is National Mental Health awareness month.  Nearly 44 million American adults, and millions of children, experience mental health conditions each year. Let’s all get educated on this issue and work towards acceptance and inclusion of people dealing with mental health issues.

May 5th                      Cinco De Mayo – stay thirsty my friends                 

May 9th                     Mother’s Day – wishing all mom’s, grandmothers, and great grandmothers a wonderful day. Hopefully soon we can get together to celebrate.

May 15th                   Armed Forces Day.  Dedicated to recognizing those presently serving in our armed forces

May 23rd                    My daughter Caryn’s birthday  

May 31st                   Memorial Day – let’s remember and give thanks to all who served our country

Jim

Sources: Investopedia, Bespoke Investment Group, Goldman Sachs

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

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

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

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

April 2021 Monthly Outlook – Reasonable Man

“The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself.”

The first quarter of 2021 was a positive one for the equity markets, while the fixed income markets saw declines due to a spike in interest rates. Like an ocean, which can look relatively calm on the surface but with significant undercurrents happening below, within the equity market, we saw a sizeable shift from “stay at home” stocks, which drove the market in 2020, into more “opening up” stocks.  The same was true in fixed income, where highly rated government and corporate bonds declined more than lower quality and floating rate bonds.

We saw similar trends during late 2020 and early 2021, only to see them quickly reverse when new covid-induced lockdowns slowed the re-opening process.  With vaccinations rising rapidly and warmer weather ahead, we are now more confident the trends under the surface will be more sustainable.  As such, we have been adjusting portfolios accordingly. One potential headwind is the risk of rising inflation.  We are already seeing the bond market price in higher inflation via the rise in interest rates.  Measures of prices on goods is clearly showing higher prices in a number of categories.  There is a great deal of pent up demand in the economy, with consumers flush with cash from government stimulus payments and a strong desire to get out of the house.  While the Federal Reserve has indicated it is not worried about inflation at the moment, if demand-driven inflation proves to be persistently strong, the Fed timing for policy liftoff may potentially be pulled forward.  Much of the recovery in the financial markets since the Covid low last March has been driven by an extremely accommodative monetary policy by the FED.  The market may not react well if the FED has to start to drain the “punch bowl”.

Source: Goldman Sachs GIR, Commerce Dept, Labor Dept. As of Mar 24, 2021 Relative to the December meeting, more Fed committee members expected higher rates by 2023 YE.

Looking ahead, the market has clearly priced in a high degree of reopening, as reflected in rotation from Growth into Value and Cyclical stocks and sectors, as well as interest rates and inflation expectations. Earnings season will kick off in a few weeks and all eyes will be on company commentary for the summer months as a true gauge of demand and whether the market has re-priced economically sensitive themes too aggressively or too conservatively. Stay tuned.

I consider myself a reasonable man and will therefore adapt according to what the world as we move forward.

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:  Christine H, Donna K, Eileen M, Peter B and Brian L

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

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

April 4th                     Easter Sunday – Have a blessed and Holy Easter

April 10th                     Christian’s wife Maecy birthday

April 12 & 13th            We adopted our 4 legged children Coco (2010) and Buddy (2013).  Sadly Buddy passed on 4/13/2019

April 15th                     Tax Day.  Remember to make those IRA or Roth contributions.  NOTE:  Tax day extended to May 17, 2021

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

April 25th                     My daughter Satya’s birthday

Sources:  Nottingham Advisors, Goldman Sachs, Federal Reserve Board

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.

March 2021 Monthly Outlook – “What a Long, Strange Trip It’s Been”

In many ways, 2021 has continued the wild trip we have all been on since early 2020 and the onset of Covid.  Good news and bad news, running simultaneously.

Here are some headlines from just the last week of February 2021:

  • Chairman Powell told Congress, “The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain.”
  • “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” – Warren Buffett
  • FDA grants emergency use authorization for Johnson & Johnson COVID-19 vaccine
  • All our recent progress with Covid-19 could be wiped out by variants, CDC director says. ‘Please stay strong’

Equities experienced a choppy month in February, as rising Treasury yields raised concerns about inflation and stock valuations.  Economic indicators, other the other hand, have been rebounding strongly.  However, employment is still lagging considerably, with some 10 million employees and small business owners still out of work.

Financial Markets:

Tail Meets Dog
Ultimately, stock valuations and interest rates are determined by economic performance. That markets are discounting near-certain continued growth is evidenced by sizable gains in most financial markets. Should questions emerge about the pace of economic improvement, such as we are seeing in the jobs data, the bull case could be challenged. There is little room for disappointment given the run-up in stock prices, tightening of credit spreads, and steepening of the yield curve. Six or nine months ago, there was plenty of room for improving expectations, but now those expectations need to be met. It seems the “dog has caught its tail” as markets have run ahead of the economy in anticipation of full recovery.  

Stocks, as represented by the S&P 500, hit the ceiling around mid-February and then spent 2 weeks declining to just above a critical support level.  My outlook is that a correction of perhaps 10% was taking shape.  Of course, as I write this note on Monday March 1, 2021, stocks are staging an impressive rebound (+2% across the board) – perhaps the dog has not caught its tail just yet.  One thing we have observed, and made adjustment to, is that first two months of 2021 have been marked by a cyclical rotation into energy, financial, and other industries that are poised to do well from a return to economic growth and rising interest rates.

Time will tell if this strange trip continues or we finally start to return to some form of normalcy but we remain focused on your long-term goals.

We hope you find this outlook informative.  Please feel free to share it.

Best regards,

Jim

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

March is Women’s History Month.  Please says thanks to all the important women in your life.

March 8th                    International Women’s Day

March 14th                  Daylight Savings begins – Spring forward

March 17th                  St Patrick’s Day

March 20th                  Spring begins in US 

March 27th                  Passover begins

March 28th                  Palm Sunday

Sources:  CNN Business, Washington Cross Advisors

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.

February 2021 Monthly Outlook – The Good, The Bad and The Ugly

My outlook right now reminds me of a classic spaghetti western from the late 1960s.

“The Good”

The spike in Covid that started right after Thanksgiving and continued through the holidays has started to abate.  Cases reported Sunday January 31st  were the lowest since 11/9, the 7-day average cases were the lowest since 11/14, and hospitalizations were the lowest since 11/29. Hospitalizations are down 14.3% week-over-week, the fastest decline since 6/4.  Source:  Bespoke Investment Group.

And while the distribution of the 2 existing Covid vaccines has been less than adequate so far, a 3rd vaccine is likely to be approved in the next couple of weeks.  The sooner the majority of us get vaccinated the sooner the economy can truly get back on track.  The “Good” is that the trend is finally going in the right direction again.

“The Bad”

The slower-than-expected Covid vaccine rollout coupled with a continued rise in cases and restrictions on activity across the country, held back growth in the fourth quarter.  However, activity is projected to rebound strongly later in the year, once vaccines are more widely distributed and the economy can get back to some semblance of normal.  “There’s nothing more important to the economy now than people getting vaccinated,” Federal Reserve Chairman Jerome Powell said on January 27th.

2020 GDP fell by 3.5%, the worst year since the end of WW II.  Despite a sizeable number of people getting back to work, we still have some 4.8 million people of unemployment and another ~5 million small business owners receiving government assistance.  The “Bad” is that the holiday gathering surge in Covid has really stalled the economic recovery, which will likely impact the early part of 2021.

The “Ugly”

There remains a wide gulf between the Covid relief package proposed by the Biden administration and a proposal from 10 moderate Republican Senators.  If both sides aren’t willing to compromise, the partisan divide in Washington likely continues.  This would mean potential delays in getting additional funding for vaccine rollout and money to support those unemployed and small business owners.  Benefits from the last Covid relief package expire in mid-March.  The political environment remains the “ugliest” thing we have to face.

So what does it all mean for you?

I expect volatility to be higher than we have seen over the last several months.  I am concerned that any delay in vaccine rollout and/or more government stimulus has the potential to lead to a double-dip recession in the economy.  I am also concerned that the financial markets are over-extended on the anticipation of a positive outcome to these 2 items, and as such are susceptible to a pullback over the next few months.  However, I expect any pullback to be moderate in scope and likely to be a good thing for the markets long-term.

Here’s an updated chart that compares this new bull market versus the ’82 and ’09 bulls. Now, if history repeats, the next several months could be due for a break or consolidation.

We have tightened up our risk tolerances a bit and remain balanced in our approach – looking out for problems to avoid but also opportunities to take advantage of.

I hope this information is helpful.  Please feel free to share it with family and friends.

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:  Greg & Valerie W, Vic & Carol C.

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

  • February is Black History Month.  Let’s all strive for understanding and acceptance for people of all colors, nationality, and religions.

February  2nd                Groundhog Day – yay he didn’t see his shadow. No let’s hope he’s reliable!

February 7th                  Super Bowl Sunday – please watch safely (masks and social distancing)

February 14th                Valentine’s Day   

February 15th                 Presidents Day

February 16th                 Mardi Gras

Sources:  Bespoke Investment Group, LPL Research, 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.

December 2020 – Monthly Outlook – “Extraordinarily Uncertain”

Get ready for a wild December:  Virus surging, possible vaccines, budget fights, stimulus proposals, and a final vote in the Electoral College.

Federal Reserve Chairman Powell testified today to the Senate that the economic recovery outlook is “extraordinarily uncertain”.  The job market is starting to show signs of slowing, with 20 million folks still receiving some form of government benefits.

Small business are closing at an alarming rate – and these figures are as of the end of September, before the most recent surge in virus cases.  In the seven months from Feb. 29 to Sep. 30, 163,735 U.S. businesses have closed their doors, including 97,966 businesses (60%) that are likely closed for good (Source: Yelp Economic Average, BTN Research). Small business owners have more economic uncertainty than in the last 20 years.

The immediate concern is December 11th, when Congress needs to pass legislation to fund the government.  Congress also needs to pass additional stimulus to support the economy until the Biden administration is inaugurated on January 20, 2021. I am confident they will get something done on the government funding but remain skeptical on additional stimulus.  All of the safety nets from the original CARES Act (extended unemployment benefits, eviction and mortgage foreclosure moratoriums, student loan interest relief, etc.) expire on December 31st.  The longer it takes to get more stimulus into the system the bigger the risk to the economic recovery.

On the positive side, recent news about potential vaccines give me hope that we are going to begin to see a more normal world in 2021.  Below are some estimates on vaccine distribution and the impact on global economic activity.

We continue to monitor economic and financial market conditions and will adjust your portfolio as needed.  We expect the market to be volatile but range bound throughout December.

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.   Thank you to Vic & Carol C. for referring friends and Dave P. for having us help his daughters.

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

  • December is Universal Human Rights Day.  Let’s pray that all people, regardless of race, religion, gender, or nationality  can learn to treat others as we all wish to be treated.

December 10th            Human Rights Day   –  I have cherished the ideal  of a democratic and free society… it is an ideal for which I am prepared to die. – Nelson Mandela

December 10th            Happy Hanukkah  –    May it be a festival of love, happiness, success, and health in your world now and always.

December 15th            Healthcare open enrollment – for coverage starting Jan 1, 2020 – ENDS!   

December 19th            Christian’s birthday

December 21st Winter Solstice    –       The shortest day of the year and the start of winter

December 25th            Merry Christmas – have a wonderful holiday.  Let’s all remember the true significance of this day – the birth of Christ. 

December 26th            Kwanzaa starts – let’s all celebrate African-American culture

Best regards,

Jim

Sources: Blackstone, CNBC, Bespoke Investments

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.

November 2020 Monthly Outlook – The Big 3

“Life is not about waiting for the storm to pass, it is about learning to dance in the rain.” – Unknown

Right now the Big 3 –  Covid, Election, Stimulus – are making for one heck of a storm.  I definitely have my dancing shoes on!

Let’s look at the Big 3 one at a time:

Covid:

Sadly, we are seeing a significant spike in Covid both here and globally.  While most experts anticipated an uptick in the fall flu season, the magnitude and speed of the uptick is greater than most expected. Just this week France announced a new round of mandatory lock-downs, Germany is closing bars, restaurants and theatres for a month, and Chicago is banning indoor dining/drinking and put a curfew on non-essential businesses.

source: Strategas

The US economy had been rebounding quite nicely from the deep contraction in the second quarter of this year but this recent uptick in Covid is starting to impact consumer behavior again.   On October 18, 2020, TSA air passenger throughput had just surpassed 1,000,000 daily for the first time since March.  With numbers like that, it seemed as though the re-opening track was running relatively smooth.  Unfortunately, the 10 days  following the million passenger reading weren’t nearly as strong.  For ten straight days, the total number of daily passengers on US airlines have been lower than the same day a week before.  That’s the second-longest streak of consecutive daily week/week declines since the start of the pandemic. 

The size of the week/week declines has been relatively small on a percentage basis, so it’s not as though air traffic is crashing to a halt, but if the million passenger milestone was a positive trend towards reopening, the slowdown that has followed it suggests that rising case counts have caused Americans to hunker down a little bit.  That’s the kind of environment we find ourselves in these days where a real-time indicator of economic momentum can indicate a positive trend at one point and then one week later it totally contradicts itself.   Source Bespoke Investments

Election:

Investors tend to conflate their anxiety about politics with anxiety about the financial markets. Although investors are inclined to believe that election outcomes will dictate what happens in the markets and their portfolios (and this may, in fact, be true in the very short-term), the reality for investors is that the future of the market is less sensitive to elections than it is to the fundamental drivers of stock prices including: Corporate profits; inflation; interest rates; job market conditions, consumer sentiment.

The good news for investors is that, regardless of who wins the election, all of these fundamental market drivers generally support stock prices in the intermediate term (one to four years). The Fed seems likely to keep interest rates low until the economy is back at full employment (probably sometime after 2023).  Although the Democrats and Republicans have different visions of coronavirus relief/fiscal stimulus with very different elements and different sizes, both parties recognize the need for incremental assistance for unemployed workers and struggling businesses to keep the pandemic-induced recession from feeding on itself. Despite everything that has happened in 2020 the US consumer has a generally positive outlook:

Source: Capital Group, Election uncertainty looks increasingly certain. Unified government indicates White House, House of Representatives and Senate are controlled by the same political party. Unified Congress indicates House and Senate are controlled by the same party, but the White House is controlled by different party. Split Congress indicates House and Senate are controlled by different parties regardless of White House control.

To be clear, we do not mean to suggest that this election does not matter. On the contrary, the consequences of this election may be as—or more—important than any US presidential election in living memory, just not for whether investors should maintain or change the asset allocation of their portfolios.

Stimulus, Stimulus, Stimulus – All That Matters Near-Term
Whether or not it is the right move long term will be determined later, but unfortunately, the economy does not appear to be strong enough to stand on its own. If the spigot turns off,  real troubles will emerge for equities and the financial sector in particular.  Congress will likely provide additional stimulus once the political pressure of the election is past. The issue is timing.  If the election results in status quo (Republicans win White House and Senate, Democrats win House) we likely get a stimulus bill sooner, but smaller – probably before the end of the year.  If the Democrats sweep the election, we likely get a much bigger stimulus package although it probably doesn’t happen until after the inauguration in late January 2021, as Republicans will have no motivation to act during the lame duck period.  If Biden wins Presidency but Republicans keep control of Senate, sadly I think we get a very small stimulus package, if any, as political gridlock will be in full force.

To recap, delayed or contested election results could fuel short-term market volatility.   Because of the expected surge in mail-in voting due to the pandemic, it’s possible the election results will not be known on election night and a complete vote count may not be available for days or weeks.   While the election may roil markets in the short term, the pace of the economic recovery and the course of the coronavirus pandemic are likely to be more important to stock market returns than who ultimately controls the White House and Congress.

Even though the spread of the virus seems to be accelerating in the United States, and Europe seems to be in the midst of a second wave of infections, progress toward a vaccine continues to hold out hope that one day our work lives and social lives will eventually return to something closer to ‘normal.’

Let’s stay hopeful and keep dancing in the rain!

Please feel free to share this report with family, friends and colleagues.  We appreciate your introduction to anyone who you feel we can help.

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

  • November is National Diabetes Month.   Please consider reaching out to a family member or friend who is dealing with this very tough disease.

November 1st           Healthcare open enrollment – runs through 12/15/18  – for coverage starting Jan 1, 2018  

                                    Note: Medicare open enrollment started 10/15/18 and end 12/7/18

November 1st           Set those clocks back

November 3th           Election Day  – be sure to vote

November 11th         Veterans Day – says thanks a Vet

November21st         Great American Smokeout – encourage a smoker to quit

November 26th        Thanksgiving – have a wonderful holiday 

Best regards,

Jim

Sources:  Charles Schwab, Fidelity, Bespoke Investments, Strategas

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.

October 2020 Monthly Outlook – A Long SLOG Recovery

The second quarter of 2020 was the mother of all economic contractions. Real GDP shrank at a 31.7% annual rate, the largest drop for any quarter since the Great Depression.  However, based on the economic reports we’ve seen so far, it looks like the third quarter will be the mother of all economic rebounds. The first thing to recognize is that even if the real GDP growth rate in the third quarter equals or exceeds the percentage drop in the second quarter, the economy is still in a very big hole.  It’s harder to grow out of a hole than it is to dig one. The bottom line is that a full economic recovery in the US is still multiple years away.

The surge in growth in the third quarter is largely related to many businesses going from a total lockdown to a new COVID-19 normal. Production and construction six feet apart, no fans in the stands, and 50% occupancy. Meanwhile, many small businesses (and some not so small) have simply disappeared. This suggests that although growth should continue after the third quarter, it’s not going to be nearly as fast.  We don’t think we get back to the level of real GDP we saw in late 2019 until late 2021. And that’s really not a full recovery because, in the absence of COVID-19, the economy would have grown 2% or more, per year, in the interim. If we define a “full recovery” as getting back to an unemployment rate at or below 4.0%, we’ll probably have to wait until 2023. The pace of the recovery in 2021-22 will depend not only on the course of COVID-19, as well as development of vaccines, and therapies, but also public policy.

From here, the economic future of the US will be largely dependent on whether Congress passes further stimulus. The $2.2 trillion CARES Act kept people and companies afloat during the early days of Covid and now those benefits are waning. We’re seeing pickups in layoffs and furloughs at many companies in the travel and leisure space, including theme parks, airlines, hospitality and sports.

It’s going to be a long slog back.   (sources: First Trust, Nottingham Advisors)

From an investment perspective, we are likely to see increased volatility going forward.  That would have been true due to Covid-19, lack of action in Washington, and the upcoming election.  It just increased with reports that the President has tested positive for the virus.

Having said that, the financial markets (basis S&P 500) have weathered a number of turbulent events since the Great Financial Crisis of 2008-2009, as the chart below shows.  More importantly, notice that despite these events and the pullbacks they created, the trend has continued to be consistently upward.  I anticipate that this trend will continue to be the case going forward.

Right now the stock market is stuck between analytical and behavioral factors.  The analytical side is seeing a slowing economic recovery and no fiscal help from Washington.  The behavioral side is following the Federal Reserve’s money printing and buying all the dips.  This has left the S&P500 range bound between 3,200 and 3,400.  The news about the President’s health probably increases the risk to the downside until we see how his diagnosis proceeds.

Therefore our approach is to remain cautious near-term but opportunistic to take advantage of pullbacks to get into high quality investments at lower prices.   Having a plan for you allows us to focus on staying on track and not get caught up in market gyrations.  As Mark Twain said “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”

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

  • October is Breast Cancer Awareness and Domestic Violence Awareness month. 

October 7th        4th anniversary of purchasing our office building – we’d love to have you come for a visit   – 141 W Main Street Rockaway

October 12th      Columbus Day

October 15th  Medicare open enrollment    thru December 7th – you can switch from original Medicare to Medicare Advantage, or vice versa. You can also switch from one Medicare Advantage plan to another, or from one Medicare Part D (prescription drug) plan to another, or drop your Medicare Part D coverage altogether. Please call us if you have any questions about your options.   

October 24th   National Food Day – I’m a definite “foodie” person, how about you?          

October 31st    Halloween

Sources:  First Trust, Nottingham Advisors, JP Morgan

September 2020 Monthly Outlook – Dog Days of Summer

Historically, August is the 2nd worst month for the stock market.  Yet again 2020 proved to be an unprecedented year. We just had the best August for stocks since 1984.     Having said that, I am still concerned about the lack of breadth in the market.  While the S&P 500 Index has made a new all-time high, only 13% of S&P stocks are making all-time highs, while 50% of the stocks have made no gains in 2 years (source: CNBC/Carter Worth).  Even worse, some 29% of S&P stocks are actually down 20% YTD (source: BTN Research).

An additional worry is that the stock market seems completely detached from the economy.  While we did see a significant economic rebound in June, with most states re-opening, the pace of the rebound in July and August slowed.  This is can be seen in employment as weekly new unemployment claims rose back above 1 million and we still have some 15 million people still out of work.  Potentially more impactful is that an estimated 33% of the pandemic-driven layoffs in the United States that occurred from March through May will be permanent, i.e., the workers will never return to their old jobs at their former employers (source: Brookings Papers on Economic Activity, BTN Research). That 33% equates to roughly 9 million jobs.

The Conference Board Leading Economic Index® (LEI) for the U.S. Increased in July Despite improvement, pace of economic growth will likely weaken in final months of 2020 “The US LEI increased for the third consecutive month in July, albeit at a slower pace than the sharp increases in the previous two months,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Despite the recent gains in the LEI, which remain fairly broad-based, the initial post-pandemic recovery appears to be losing steam. The LEI suggests that the pace of economic growth will weaken substantially during the final months of 2020.”

Much of the government support provided earlier this year expired at the end of July and Congress has returned to their partisan bickering. While I do expect them to get to an agreement, the longer they delay the more long lasting the negative effect on the economy.

So what’s ahead for us in September.  Well, we are getting into the heart of election season, which means increased volatility.  The economic recovery is slowing down and the economy is still well below its pre-Covid level. September is traditionally a poor month for stocks.  However, 2020 has proven to be about as unpredictable as any year in history.  We also have the Federal Reserve which is committed to doing what it takes to support the economy. As show in the chart below, September tends to be a weak month. In fact, it is the weakest month on average since 1950. Additionally, the last two times August was up more than 5% were 1986 and 2000; the S&P 500 fell 8.5% and 5.4% in September those years.

Our approach is to remain invested but take some profits in some of the big winners, offsetting some of the declines from earlier this year.  We are keeping equity allocations in line with your overall risk tolerance but we are making some shifts between industries/sectors.

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:   Steve K.,  Dave P., Dennis A. 

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

  • September is National Suicide Prevention month – let’s look out for friends and loved ones having a hard time in 2020

Sep 7th             Labor Day

Sept 11th          Patriot Day- honoring those who lost their lives on 9/11/01

Sept 18th          Rosh Hashana begins – wishing all our family, friends, and colleagues of the Jewish faith Shanah tovah um’tukah

Sept 22nd         Autumn begins – let’s pray it doesn’t include a bad flu season

Sept 27th          Yom Kippur- Chag Sameach

Best regards,

Jim

Sources:  LPL Research, Bloomberg, CNBC

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.

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.

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.