Historically, August is the 2^nd 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 7^th             Labor Day

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

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

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

Sept 27^th          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.

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.

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

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 23^rd 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.

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.

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  8^th        My birthday!

August 13^th       International Left-Handers Day

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

August 26^th       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 26^th      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.

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)

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.

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

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

July 11^th          My daughter Ryan’s birthday

July 23^rd         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.

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.

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 14^th        Flag Day                  

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

June 21^st        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.

I sure underestimated the size of the relief rally and my thesis has been wrong – so far.

The market has made a miraculous recovery.  Certainly better than I anticipated.  Yet perhaps a little ahead of itself.  Basically, stocks are only down approx. 15% from the all-time high in February 2020.  It seems to me that the US and world are more than 15% out-of-whack, so there is clearly a disconnect between the market and what’s happening around the globe.

A few data points to consider:

• There are now over 30 million people unemployed in the US – that’s almost 20% of the workforce; that’s 8 million more jobs lost than all the jobs created from 2009 – 2019; and that’s 21 million more jobs lost than during the entire Great Financial Crash in 2008-2009.  Yes, many of these people will go back to work once the economy opens back up, but I think its clear many will not have a job to go back to.

• Both Chase and Wells Fargo have stopped doing HELOCs and have tightened conditions in which it will make mortgages, requiring higher FICO scores and bigger down payments for new loans.  Why?  “Wells Fargo Home Lending will temporarily stop accepting applications for all new home equity lines of credit after April 30,” Goyda said in an emailed statement. The choice “reflects careful consideration of current market conditions and the uncertainty around the timing and scope of the anticipated economic recovery.”
• As of April 29^th, more than 3.8 million homeowners were in mortgage forbearance plans, under the governments CARES Act program.  This represents 7.3% of all active mortgages accounting for $841 billion in unpaid principal.  Applications to participate in the forbearance program have been swelling at a rate of approximately 500,000 per week.

The U.S. economy contracted -4.8% in the first quarter, according to the GDP release yesterday. It’s the largest contraction in GDP since 4^th quarter of 2008.  This was worse than analysts were expecting and was the first contraction since the first quarter of 2014. 2Q is going to be worse as much of the economy has been closed for the first month of the quarter. Perhaps the more astonishing data point was the decline in personal consumption, which shrank -7.6%. This suggests consumers were cutting back even before the economy officially closed. Even with a re-opening, it is hard to envision a scenario where consumers run out to spend. An economy that is 70% consumption may take longer to recover than most initially thought.

source: Strategas

The key point is that the US economy is not Sleeping Beauty, ready to wake up at first kiss by the government.   It’s true that $2+ trillion in government bailout money, and trillions more from the Federal Reserve, will blunt the damage. But it won’t stop the atrophy. It just slows it down.  My outlook is for a slow, “swoosh” like recovery.  Basically a sharp contraction followed by a gradual recovery over the next 18 months.

On the investment front, there is a disconnect between rising stock prices and falling corporate earnings.  Based on my swoosh economic outlook, I estimate the fair value of the S&P 500 is around 2,600, compared to 2,912 where it ended April.  This implies a potential 11% pullback from current levels.  The big question is where are we in the process?  Are we in the true recovery phase (see right side below) or are we at the early stages before things get worse (see left side below).  The answer likely is based on the medical outcome.  With a proven treatment for Covid-19 or a vaccine we are probably on the right side – without either we are probably on the left side.

Quote of the Day
“KEEP IN MIND THAT progress is not always linear. It takes constant course correcting and often a lot of zigzagging. Unfortunate things happen, accidents occur, and setbacks are usually painful, but that does not mean we quit.”

– Buzz Aldrin (Astronaut)

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

 

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 5^th                       Cinco De Mayo – stay thirsty my friends                 

May 10^th                     Mother’s Day – wishing all mom’s, grandmothers, and great grandmothers a wonderful day. Hopefully soon we can get together to celebrate.

May 16^th                      Armed Forces Day.  Dedicated to recognizing those presently serving in our armed forces

May 23^rd                     My daughter Caryn’s birthday  

May 25^th                     Memorial Day – let’s remember and give thanks to all who served our country

 

Sources:  Strategas, Fidelity, CNBC.com, Dwyer Strategy

 

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.

Following up on my 3/31/2020 note on the CARES Act here is a link to IRS information on how to receive your stimulus payment     https://www.irs.gov/coronavirus  NOTE:  The IRS will NOT call you about direct payments.  Any calls you receive are scams.

We are in a new world that has 3 inter-related parts –  Healthcare, Economic, and Financial.

On the healthcare front my biggest concern is the trajectory of the spread of Covid-19 here in the US.  “Current U.S. trends are concerning, suggesting a course potentially worse than Italy. “We highlight five dynamics to watch [which we] believe suggest the U.S. is facing a broad and accelerating outbreak.” (Morgan Stanley Biotechnology analyst)

1. U.S. cases are growing the fastest globally
2. U.S. mortality is not slowing despite social distancing
3. New cases are growing faster than testing capacity
4. New ‘hot spots’ are exhibiting growth above other regions
5. U.S. social-distancing measures remain less strict than those of other countries

“We would highlight that the biggest risk to this forecast is that while we have reasonable confidence the East and West coasts will reach peak cases in the next 2-3 weeks, the interior of the country is now exhibiting signs of new outbreaks.” (Morgan Stanley)

This is a scary and sobering outlook.  While I pray the trajectory shifts from blue line in the chart on the left to the pink line, my outlook is based on the red line.

On the economic front, my biggest concern is the longer it takes to get the virus under control, so the economy can open back up, the greater the possibility of significant and potentially permanent damage to the economy, both here in the US and globally.  Here, I am praying for a path that follows the dark blue line, but my outlook is based on the light blue line. This would have us in a recession until the end of 2021.

Source Blackstone

On the financial front, the Federal Reserve and the US government are taking extraordinary steps to support the financial system.  Only time will tell to what extent these actions succeed in limiting the damage.  From an investment perspective , I believe we are in the eye of the storm.  We had the initial damage when the storm first hit in early March. We are now in a period of relative calm, but I expect the storm to swing back around and create more damage.

Using history as guide, I expect we will likely retest the lows in stocks from mid-March, which would be a 15% decline from where we ended March.   It is also conceivable we could go even lower if the virus drags on and the economy remains shutdown longer. “Waterfall declines – Stocks have broken the initials lows of a waterfall decline almost 70% of the time by an average of 7.2%”  (Ned Davis Research)

Right now I believe the market is somewhere between fear and panic (see chart below).  When it comes to your portfolio, I have to weigh the risk of going back into stocks too early, with potential for some additional downside, against the risk of going back in too late, with the potential to miss some of the recovery.  Catching it right at the point of maximum financial opportunity is virtually impossible, more so in these uncharted waters.  Please reply to this email (or give me a call) to let me know your thoughts on going too early or too late.

As always, we continue to monitor your portfolio and the market/economy continuously.

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 9^th                       Passover begins – Chag Pesach Sameach

April 10^th                     Christian’s wife Maecy birthday

April 12^th                      Easter Sunday – Have a blessed and Holy Easter

April 12 & 13^th            We adopted our 4 legged children Coco (2010) and Buddy (2013)

April 15^th                     Tax Day.  Remember to make those IRA or Roth contributions.  NOTE:  Tax day extended to July 15, 2020!

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

April 25^th                     My daughter Satya’s birthday – wow she is turning 35!  I must be getting old 😊

Sources:  Ned Davis Research, Oppenheimer Investments, Blackstone, Morgan Stanley Research, Westcore Funds

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.

This coronavirus is a true wild card. It appears to be spreading globally. It is now on every continent except Antarctica and in over 60 countries. While individual risk is low, collectively the public health risk is significant.

“More cases are showing up in the U.S. and seem likely to be just the start. The scope, severity, and duration are uncertain. How much it changes behavior in the U.S. is uncertain.”  (Ed Hyman Evercore ISI)

People are starting to react out of an abundance of caution.  This is critical as the consumer has been the driving force in the US economy.

Certainly there is going to be slowing economic growth, both here and around the globe.  “The risks are clearly skewed to the downside until the outbreak is contained. An increasing amount of companies [are] suggesting potential production cuts should supply chain disruptions persist into Q2 or later.” (Jan Hatzius, Goldman’s chief U.S. economist).   If they get the virus contained and/or find a vaccine, the economic damage will be short term.  If the virus spreads and it takes longer to find a treatment, then we could be looking at a recession later this year or early 2021.

On the investment front, some of our indicators are flashing red.  Specifically, the S&P 500 broke below a 2-year trend line. As such, we are adjusting client portfolios to lower equity exposure.  We are suggesting client’s do the same in their 401Ks or other accounts that we don’t manage.  Always consider your investment objectives, time horizon, and risk tolerance before making any changes. Call us if you have questions.

This situation is quite uncertain, and we don’t want to overreact.  But we also don’t want to underreact.

At the moment, we feel a moderate adjustment is sufficient.  The market could spring back as fast as it declined, so we don’t want to overshoot with our adjustments. In fact, I fully expect a bounce back rally in stocks in the near-term.  However, I am not confident that rally will hold and stocks likely drop back to their recent lows from last week.

I also expect central banks and fiscal authorities to take action to try to offset the economic and financial impact of the virus situation.  This should provide a short-term boost to the financial markets. Here again, the scope of these actions is limited and whether something like an interest rate cut changes consumer behavior in the face of the virus is suspect.

The next several weeks will be telling.  If the spread of the virus starts to slow, that will indicate that actions being taken (quarantines, travel restrictions, etc.) are working.  We are monitoring this using

https://www.worldometers.info/, which provides real-time data on population, governments and economics. It is managed by an international team of developers, researchers and volunteers.

I hope this report proves helpful. Please call with any questions or concerns.

 

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 8^th                   International Women’s Day

March 8^th                   Daylight Savings begins – Spring forward

March 9^th                   Purim – Chag Purim Sameach to all of the Jewish faith

March 17^th                 St Patrick’s Day

March 19^th                 Spring begins in US

 

Sources: CNBC.com, FactSet

 

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.

 

 

The stock markets started 2020 right were they left off in 2019 – a steady climb to new all-time highs.  What was driving the market higher?

I would call it “peak happiness” – a wonderful mix of a high level of valuation, investor confidence, financial liquidity and risk appetites.    In fact, stocks were almost back to where they were in 2017 when they hit “peak happiness,” marking the highest level achieved during this decade-long bull market.

Similarly, trader sentiment and hedge-fund positioning were almost — but not quite — as unreservedly aggressive as they were then, as investor surveys and the patterns in options-trading volume confirm. Bespoke Investment Group calculates the market has been statistically “overbought” 98% of all days since October, the longest such stretch since late-2017-early 2018.

While stock gains and all-time highs are great, the underlying fundamentals leave the market vulnerable to a sudden correction when any of these “happiness” factors reverses or an unexpected catalyst appears.  And many times, the more extended the stock market is, the farther it falls when the happiness ends. The catalyst for the correction back in late 2017 was rising interest rates, tightening liquidity and recession fears.  This time the catalyst is the coronavirus.

Financial markets hate uncertainty and widespread medical emergencies fit in that category.  Historically, there is a negative short-term reaction to these types of catalysts, but long-term results have generally been positive.

Economists currently estimate the outbreak could lower China GDP (gross domestic product) by 1%.  The impact on the US economy will be less as our GDP is more dependent on domestic demands.  The world economy, however, may slow back towards stall speed (less than 1% growth) as China has been a major driver of global growth.

What does it all mean to you?

In the short-term, stocks will certainly be more volatile and likely to continue to fall. Longer term, the US economy looks stable and capable of managing through.  However, much depends on how widespread the coronavirus spreads and how long it takes authorities to get it under control.

While my cautious approach in the late fall of 2019 looked wrong-footed given the equity market gains at the end of last year, I am glad we remained neutrally positioned as that bodes well for this period of uncertainty and volatility.

Please call me if you have any questions or concerns about the markets, economy or your portfolio.

We have added a new tool to help those nearing or just beginning retirement to explore their readiness for retirement.  It’s an easy interactive tool.  Please share it with family, friends and colleagues.

https://www.ready-2-retire.me/JimMcCarthy

 

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

February 14^th                  Valentine’s Day

February 17^th                  Presidents Day

 

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.

 

Sources:  Julex Capital, FactSet, CNBC, Bespoke Investment Group

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

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

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

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

2019 proved to be a year full of surprises. Trade wars and a global manufacturing decline weighed on the global economies in 2019, although interest rate cuts and resilient consumers provided a positive stock market outcome.

The question heading into 2020 is: What may tip the scale?

Will ongoing trade uncertainty and weakened manufacturing hurt job growth, finally dragging down the services and consumer side of the economy? Or will interest rate cuts and a resolution of the trade war spark a fresh round of global economic growth?

Key takeaways:

• The U.S. economy will likely remain split in early 2020, with manufacturing and business investment still struggling amid trade uncertainty but services activity and consumer spending healthy.
• A preliminary U.S.-China trade deal might stabilize corporate confidence, but a strong business investment environment likely requires a comprehensive trade deal.
• A global recession could occur if the manufacturing slowdown spreads to jobs and consumers.
• The Fed’s 2019 rate cuts should support the economy and stocks, although the cuts are only a partial cure for what ails manufacturing and corporate profits.

Investing in 2020:

I have an increasing concern that equity prices may be out of line with corporate fundamentals (profits).

Although the stock market continues reaching record highs, companies are making less than they did five years ago, so this performance is largely driven by Price/Earnings (P/E) expansion. The gap between the S&P 500 and corporate profits hasn’t been this wide since the Tech Bubble in the late 1990s, another period when the S&P 500 had strong gains despite stagnant earnings.

Source: St. Louis Fed, Yahoo Finance

 

Risks I am watching:

• Geopolitical risks – recently heightened by the US action in Iran
• Election year – always creates uncertainty and therefore volatility
• Global Trade relations – do the US & China strike a deal, do the US & Europe have a trade dispute, does the UK leaving the EU create problems in Europe.

Stay tuned!

I hope this note provides useful information.  Please feel free to share it with family and friends.

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

• January is National Blood Donation Month.  Let’s all give a pint to help another.

 

January   5^th                    My granddaughter Isys turns 14.  I must be getting old.

January 10^th                    My better half, Eloise’s birthday.

January 15^th                    10^th anniversary of my independent practice – thank you to all my loyal clients.

January 20^th                    Martin Luther King Day.  Let’s pray for more racial tolerance and understanding.

 

Sources: Schwab Investment Management, CNBC, 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.

 

U.S. Equities closed the month of November near record highs.  The gains have been fueled by optimism that U.S.-China trade issues will be resolved amicably.  I remain skeptical of this. This can clearly be seen in the divergence of consumer confidence and CEO confidence.  Consumers tend to be more near-term focused, while CEOs have to make plans for staffing, capital expenditures and investments going out a year or two. Clearly CEOs are concerned.

Also, while consumer confidence remains significantly higher than CEOs, “Consumer confidence declined for a fourth consecutive month, driven by a softening in consumers’ assessment of current business and employment conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

One key economic indicators I follow is the Leading Economic Indicators (LEI).  While month-to-month changes can be caused by “noise”, I watch the longer term trends.  Here are notes on the most recent report for October 2019:

• “The US LEI declined for a third consecutive month, and its six-month growth rate turned negative for the first time since May 2016. The decline was driven by weaknesses in new orders for manufacturing, average weekly hours, and unemployment insurance claims,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The major difference this month is the softening in the labor market, whereas conditions in manufacturing remain weak and show no signs of improvement yet. Taken together, the LEI suggests that the economy will end the year on a weak note, at just below 2 percent growth.”

 

The fact that the 6-month growth rate has turned negative is concerning to me.

All told, I feel the US economy is slowing but will likely plod along at about 2% annual growth.  This is not the problem.

The problem is the financial markets, specifically US stocks, are reflecting a much better situation.  The term you might here is “stocks are priced for perfection”,  or “it’s a goldilocks market” meaning stock prices are reflecting positive outcomes to trade disputes, economic growth, monetary stimulus and consumer spending. How will the market react if any, or some, of these outcomes are not as positive?

For the last few months, I have been cautious and in a neutral position in portfolios.  Through the end of November, that posture proved too conservative.  However, stocks have declined by 2% over just the last three trading days, mostly because of new uncertainty around the trade situation. Just today, December 3^rd, President Trump indicated he may wait until after the 2020 elections to push for a trade deal with China.  December 15^th is a key date.  The US is set to impose new tariffs on China.  Will that happen? The market has been betting it will not. I’m not so sure.

I continue to believe the upside potential is less than the downside risk, at the moment. As such, we will remain neutrally positioned with a cautious bias. I would rather miss out on a small upside move to avoid getting caught in a swift downside adjustment.

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.

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

December 19^th            Christian’s birthday

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

December 22^nd           Happy Hanukkah  –    May it also be a festival of love, happiness, success, and health in your world now and always.

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

 

Sources: The Conference Board, 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.