For the Week of April 12, 2021

THE MARKETS

Despite an unexpected jump in jobless claims, stocks rose Friday amid the accelerating vaccine rollout and reopening optimism. Both the Dow and the S&P hit record closing highs. For the week, the Dow rose 1.99 percent to close at 33,800.60. The S&P gained 2.76 percent to finish at 4,128.80, and the NASDAQ climbed 3.13 percent to end the week at 13,900.19.

Returns Through 4/09/21	1 Week	YTD	1 Year	3 Year	5 Year
Dow Jones Industrials (TR)	1.99	11.02	45.57	14.73	16.70
NASDAQ Composite (TR)	3.13	8.05	71.82	27.23	24.73
S&P 500 (TR)	2.76	10.39	50.50	18.70	17.33
Barclays US Agg Bond (TR)	0.40	-2.90	0.37	4.84	3.14
MSCI EAFE (TR)	1.80	6.09	43.85	6.55	9.72

They’re Buying Bonds — The Fed is buying $120 billion of bonds each month – $80 billion of Treasury debt and $40 billion of mortgage-backed securities. On March 31, the Fed confirmed the purchases will continue “until substantial further progress has been made toward the committee’s maximum employment and price stability goals.” (source: Federal Reserve, BTN Research).

Lowest Paid, Hardest Hit — 82 percent of the net job losses in the United States in 2020 were suffered by workers in the bottom 25 percent of wage earners (source: Economic Policy Institute, BTN Research).

Wealthiest — The top 10 percent of U.S. households (as measured by net worth) own 70 percent of all assets nationwide as of Dec. 31, 2020, i.e., $85.6 trillion out of $122.9 trillion. The bottom 50 percent of U.S. households own just 2 percent of all assets as of Dec. 31, 2020, i.e., $2.5 trillion out of $122.9 trillion (source: Federal Reserve, BTN Research).

WEEKY FOCUS – What You May Not Know About Estate Taxes

You have worked hard, managed your finances well, and invested wisely to protect your future and care for your family. It’s crucial not to lessen your vigilance when it comes to your estate. Unfortunately, the Tax Cuts and Jobs Act (TCJA) passed in 2017 has lulled some individuals into a false sense of security.

In 2021, a person’s estate is exempt from federal taxes as long as it is under $11.7 million. (The amount over the exemption can be taxed at up to 40 percent.) But the current exemption, which doubled under TCJA, is set to expire in 2026 barring further legislation. And the Biden administration has already proposed cutting much of the estate tax exemption.

Even estates well within the federal exemption may still be impacted by state death taxes. In 2021, Washington, Oregon, Minnesota, Illinois, Maryland, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, Hawaii, and Washington, D.C., all levy estate taxes on estates above $1 to $5.9 million. Among the list, the highest estate tax rates vary from 12 to 20 percent.

Another six states levy an inheritance tax: Nebraska, Iowa, Kentucky, Pennsylvania, Maryland, and New Jersey. The states’ highest inheritance tax rates vary from 10 percent (Maryland) to 18 percent (Nebraska). All six states exempt spouses from paying inheritance tax; some extend at least a partial exemption to immediate relatives.

Although some states reduced or eliminated estate tax burdens to retain wealthy residents over the past decade, pandemic-related budget woes may reverse that trend. For example, the District of Columbia reduced its estate exemption from $5.67 million in 2020 to $4 million in 2021. And a taxable $10 million estate could owe nearly $1 million in estate tax to D.C.

There may be ways to reduce an estate’s taxes or fees: various types of trusts; transferring assets into a Limited Liability Company or Family Limited Partnership; gifting assets; putting money into a life insurance policy; even moving to another state. Estate planning can be complex, and it’s crucial to get it right. We would be happy to work with you, your attorney and tax professional to find solutions for your situation.  We do not provide tax or legal advice; please consult an accountant or attorney for more information.

Having experienced nearly every other type of intrigue this year, we find ourselves now in the midst of a contested Presidential election.

Going into the election, any number of scenarios were possible, though the market seemed to have been pricing in a so-called “blue wave”, a Democratic sweep of the White House, Senate and House. The belief was that a Democratic agenda would include a robust stimulus package of greater than $2 trillion, followed by a large tax-hike and increased social spending.

It now appears clear that Joe Biden will be the next President, the House stayed in Democratic hands albeit with a smaller majority, and the Senate remains in Republican hands, at least until the January 9, 2021 special elections in Georgia.

The financial markets cheered this outcome with a nice 5% rally post-election last week.  We may see some volatility over the next several weeks as vote recounts occur in a couple of states and lawsuits by President Trump and Republicans work through the legal system.  The likelihood of any of that changing the outcome are quite slim. 

It’s our belief that the media cares a lot more about elections than markets. True, major policy shifts can have an outsized short-term impact on markets as sectors and asset classes get re-priced. In the long-run, however, the market has a tendency to shrug off changes in political leadership, and focus more on the ability of corporate America to grow earnings.

During the transition period – now through Inauguration on January 20, 2021 – the US still faces some serious challenges:  (1) Covid cases are spiking to over 125,000 a day; (2) the economic recovery seems to be slowing due to this spike in the virus; (3) because of this slowdown we need a stimulus bill passed sooner rather than later; (4) the government needs to approve a spending bill by December 11, 2020 or face a shut-down.  The risk here is that President Trump’s challenge to the election results drags out (the 2000 election wasn’t decided until 12/8/2000) and that Congress can’t/won’t compromise and pass stimulus and spending bills during the transition period.  This would definitely set the economy back and mean a terrible holiday season for those dealing with Covid and those unemployed because of it.  

So now let’s turn to the future under a President Biden with a split Congress.   Let’s Make a Deal!

While Washington DC is a politically toxic city and we just had several years of hyper-partisanship, there is a glimmer of hope that Biden and McConnell will have a cordial and productive relationship.  They worked together for 24 years in the Senate, back in the 80’s and 90’s, when there was more willingness to compromise.  They even worked together when Biden was Vice President under Obama and served as that administration’s point person with the Senate.  By most accounts, they have a good relationship. McConnell was the only Republican member of Congress to attend Beau Biden’s funeral.

Both of them are known as master deal-makers, with extraordinary  institutional knowledge of the Senate. They know how to get things done. By contrast, neither Barack Obama nor Donald Trump were comfortable dealing with the Senate.  However, in order to get much done, both Biden and McConnell may have to tilt toward the center. There’s a decent chance for things like a stimulus bill or infrastructure spending.

So will there be nothing but gridlock? Maybe not. There may be surprising deal-making between these two old adversaries, who surely realize that they may have to cooperate if they want to get anything done.  

As we had no bias going into the election, your portfolios were positioned for whatever outcome might ensue. Our strategies are designed to pay off over years, not weeks or months. We will be watching closely as things change over coming weeks. If the facts change, our decisions may change. Until then, our diversified allocations continue to limit risk, offer the potential for relative returns, and allow us to stay open to changing circumstances.

Feel free to reach out if you have any questions.  Also, please share this update with anyone who you feel it would benefit.

Sources:  Nottingham Advisors, Ivy 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.

With the Presidential election less than a month away, you likely have questions over which candidate is better for the stock market. While conventional wisdom says that Republican Presidents are better for the stock market, historical market performance suggests otherwise.  The table below shows the performance of the DJIA under every President since 1900 from the time they took office to the time they left.  For the 12 Republican presidents since 1900 (including Trump), the DJIA’s average annualized return during their tenure has been a gain of 3.5%.  For Democrats, though, the average is nearly twice as much at 6.7%.  Since WWII, the spread between Democrats and Republicans is a bit narrower (7.5% vs 6.1%), but still favors a Democrat President.

Six Potential Outcomes

In the limited sample size of US electoral history, certain partisan outcomes are frequently viewed as more favorable for investors than others. For example, instances of a divided Congress under either presidential administration since World War II have delivered a 13.4% median annual return historically. The market may appreciate America’s system of checks and balances.

2020 Election

Odds of a Biden win have increased over the last couple of weeks.  So have the odds of the Democrats winning the Senate. The House of Representatives outcome has never really been in question.  A lot can change in the last 4 weeks of an election cycle so any particular outcome is still possible.

The financial markets – which don’t see Red or Blue, they only care about Green – would likely prefer some form of divided government as this would mean more gridlock in Washington and reduce the risk of significant policy changes in either a far right or far left direction. As you can see from the chart above, Republican President’s tend to do better when Republicans control Congress, while Democratic President actually do best with a divided Congress or a Republican Congress (who’d of thunk that!)

Right now, we think the most likely outcome is some form of divided government.  If Trump wins, the Republicans likely retain the Senate, albeit with a smaller majority than the present 53-47.  If Joe Biden wins the Presidency, it is likely that the Democrats take the US Senate, but it would likely be a very narrow majority.

There’s no question that higher taxes are coming as the Federal debt has skyrocketed and has to be paid for at some point.  If Biden wins, tax hikes are more likely than if Trump wins but it all depends on the outcome in Congress. 

If the Democrats were to sweep, we would imagine at least several Democrats balking at immediately imposing tax hikes. Remember, when President Obama took office in 2009, the Democrats had 59 seats in the US Senate, and taxes didn’t go up until 2013. This was because Democrats were hesitant to hike tax rates when unemployment was high and the economy was slowly recovering from the Financial Panic of 2008-09.  On the other hand, a Democrat sweep likely means significant stimulus spending to boost the economy.  They will also favor sectors like healthcare, infrastructure, and clean technology. Conversely it would be a less favorable climate for several sectors such as fossil fuels, defense, and financial services. 

No matter the outcome THE MARKETS ARE IN THEIR OWN UNIVERSE, stoked by the likelihood of ultra-low interest rates for years to come and a Federal Reserve that is committed to keeping the economy afloat.   Probably the most important point is to stick with the overall game plan and stay invested, as can be seen from the chart below.

Staying Invested vs. Investing in Single Party

While this is the long-term outlook post-election, there is likely to be hightened volatility around election day due to Covid-19.  The virus is causing many more people to vote by mail than in previous elections.  This means that a winner is likely not declared on election night.  Bear in mind, the news media – which loves to be the first to declare anything – is not the final arbiter of the winner. 

The Secretary of State in each state certifies that state’s election result. When Americans vote for the presidential and vice presidential candidate of their choice, either by mail or in-person, this November, they will actually be casting a vote for a slate of electors, equal to the number of a state’s electoral votes, who will cast a vote on their behalf in their respective state capitals on December 14. Most states pledge all their electoral votes to the winner of the popular (citizen) vote.  Some allocate their electoral votes proportionally.

In this highly partisan environment another risk looms – “faithless electors” (electors who do not cast their electoral vote for the candidate to whom they are pledged). This is a real potential in states with divided governments, like Pennsylvania and Michigan, where the Governor is a Democrat and the Legislature is Republican controlled.

There are all sorts rules that are arcane and confusing  – there is even a scenario (extremely remote) where Trump is named President and Harris is named his VP.  I won’t delve into those here other than to say fasten your seat belts – 2020 is likely going to be a repeat of the “hanging chad” in the 2000 election between Bush and Gore.  Recall that election was final until a Supreme Court decision on December 12, 2000.

Most importantly in 2020 it is important for all of us to cast our vote – just be safe while doing so.

Let us know if you have any questions.

Best regards,

Jim

Sources: Bespoke Investments, Bloomberg, Charles Schwab, Goldman Sachs Asset Management, CNN

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.

For the Week of September 14, 2020

The Markets

Stocks ended Friday’s volatile session mixed; the NASDAQ ended lower while the S&P and Dow Jones rose. The three major indices all posted steep losses for the week. The NASDAQ experienced its worst weekly decline since March. For the week, the Dow lost 1.61 percent to close at 27,665.64. The S&P dropped 2.49 percent to finish at 3,340.97, and the NASDAQ fell 4.06 percent to end the week at 10,853.54.

Returns Through 9/11/20	1 Week	YTD	1 Year	3 Year	5 Year
Dow Jones Industrials (TR)	-1.61	-1.34	4.44	10.40	13.71
NASDAQ Composite (TR)	-4.06	21.76	34.15	20.30	18.92
S&P 500 (TR)	-2.49	4.80	13.49	12.51	13.52
Barclays US Agg Bond (TR)	0.25	7.03	7.75	5.16	4.32
MSCI EAFE (TR)	1.45	-5.21	2.40	1.50	4.97

Cheap Money — The yield on the 10-year Treasury note closed at 0.695 percent on Aug. 31, down from 1.91 percent as of Dec. 31. The all-time low close for the 10-year note is 0.501 percent set on March 9 (source: Treasury Department, BTN Research).

Need More, Not Less — The suppliers of lumber cut their production in the first quarter of 2020 as the pandemic was developing in anticipation of a slowing housing market. Instead, an increased demand for home building and renovation projects has pushed the price of lumber to an all-time record price of $858 per thousand board feet, up 111 percent from a price of $406 per thousand board feet at the end of 2019 (source: CME Group, BTN Research).

The Most Paid — The maximum Social Security benefit paid to a worker retiring at full retirement age in 2020 is $3,011 per month, triple the $975 per month maximum benefit paid 30 years ago (source: Social Security, BTN Research).

WEEKLY FOCUS – National College Savings Month

Over the last four decades, the price of a college education has grown disproportionately to other costs. During the 1978-79 school year, it cost today’s equivalent of $8,250 to attend a public university and $17,680 to attend a private university. Now, a year at a public school averages $21,370, and a private college runs $48,510 a year.¹ It’s no wonder Americans owe $1.5 trillion in student debt.²  Clearly, saving early and wisely has never been more important. Here are a few avenues to consider.

529 Plan: This qualified tuition plan was created to allow families to save money for future education without paying federal taxes on its growth – as long as it is used for qualified higher-education expenses. (The Tax Cuts and Jobs Act now allows families to use funds toward a private elementary or secondary education as well.) If the original beneficiary doesn’t need the funds for education, the beneficiary can be changed to another family member. Balances can’t exceed the beneficiary’s expected educational expenses. Many states offer a tax credit or deduction for contributions, often limited to their own state’s plan.

There are two types of 529s. A 529 Prepaid Tuition Plan locks in the current price for a block of tuition at a specified list of schools. With the more flexible and popular Education Savings Plan, funds go into an investment account.

UGMA/UTMA Account: Adults can easily make irrevocable gifts to a minor with these custodial accounts. Earnings are usually taxed at the child’s lower rate. The beneficiary must be given control of the account when they turn 18 to 25, depending on the state. Since the child owns the account, the assets may impact the student’s financial aid.

Coverdell Education Savings Account: Like 529 Plans, contributions are not deductible and distributions aren’t taxed. However, these plans are more restricted as individuals or couples who wish to open an account must meet income guidelines, and annual contributions cannot total more than $2,000 per beneficiary from all contributors.

This brief overview doesn’t cover all the rules and considerations of these accounts or other options. If you’d like to learn more or need help planning for a child’s or grandchild’s education, please call our office.

¹https://www.cnbc.com/2019/12/13/cost-of-college-increased-by-more-than-25percent-in-the-last-10-years.html²https://www.marketwatch.com/story/americans-save-a-record-352-billion-for-college-in-529-plans-why-thats-not-necessarily-a-good-thing-2019-09-27

Coronavirus (COVID-19) continues to dominate world news. Markets took a beating in March, but with the support of a massive monetary and fiscal response around the world, some markets have started to recover.

Presently, there is an epic battle going on between monetary and fiscal stimulus on one side and overwhelming negative economic data and declining corporate profits on the other.  While the recent rally off the lows has been extraordinary and encouraging, I am troubled that the sectors leading the recovery are traditionally defensive sectors like healthcare, utilities and real estate.  Optimally, cyclical sectors like industrials, financials, and consumer discretionary would be leading the recovery. So far, these key sectors, along with Small Cap stocks, continue to underperform.

While we believe the stock market is continuing through its four-step bottoming process (oversold, rally, retest, breadth thrust) there has been enough evidence in certain areas to move to a more neutral position on stocks. The message within fixed income sectors is similar, due to unprecedented Federal Reserve intervention, so we moving to a neutral position in bonds. These indicator improvements we’ve seen do not mean a retest is off the table. In fact, historical tendencies and leadership trends support a retest. Ultimately, the market direction depends on what happens with the coronavirus.

Chart of the week: A prolonged economic recovery may signal further volatility ahead

• The Conference Board put together a range of potential scenarios by which investors may think about an eventual U.S. economic recovery.
• According to their analysis, U.S. GDP would decline by -3.6% in a best-case scenario that includes a May reboot and a V-shaped recovery. In a worst-case scenario, the U.S. economic growth would decline -6.6% in 2020, or more than twice the GDP decline of 2009.
• My outlook is along the Fall recovery line with a steeper decline in the economy.  I just pray we don’t get a virus resurgence in the fall as illustrated below.

Hoping you are safe and well.

Sources:  Conference Board, Ned Davis Research, 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.

Folks,

First, I want to wish you a happy Passover and Easter.

Everything about the last few months have been historic.  The Covid-19 is a crisis like no other we have seen in our lifetimes. In the financial markets we continue to see extreme volatility, both up and down, across most asset classes.  We have also seen unprecedented actions by governments and central banks in an effort to mitigate the economic and financial damage from dealing with the virus.

Since the low point in the S&P 500 on March 23^rd, we have seen a relief rally, then another decline, and another relief rally this week.  The bounce of the low has exceeded what history suggested and has only been exceeded by a relief rally of 24% coming off the late 2008 low, which lasted over a month but ultimately led to a lower low in March 2009.  The drop from record levels in February 2020 was historic in both degree and speed and so too has been the relief rally. The broad stock market remains some 21% below the February 2020 high.

Our game plan was formed based on the way the market declined and how it tracked previous serious economic slowdowns such as 1987 and 2008/2009. So the obvious question is whether we are sticking with our game plan anticipating a retest of the low before this is all over.

What are we still worried about?

1. As of this morning, some 16 Million American’s filed for unemployment – that’s over 10% of all jobs in America lost.  That number will continue to climb over the next several weeks. How many jobs will be lost permanently, post-Covid 19, is an unknown.
2. Small businesses have yet to get needed money from the government support programs.  Small businesses account for approximately 64% of all employment in the US.  How many of these businesses close permanently?  Another unknown.
3. Almost 90% of the country is still in a “shelter-in-place” status through the end of April. When will that start to change?
4. The economic shutdown was so swift that the impact has not been accurately reflected in economic report yet.
5. Our contacts in the mortgage market suggests extreme stress in both the residential and commercial mortgages due to forbearance requests.
6. Our contacts in the bond markets report that while the actions of the Federal Reserve has led to improvement, there is still significant stress in the credit market.

We need to see significant improvement in the above factors before overriding our game plan.  So at this point we are sticking to our game plan and would rather wait to adopt a more offensive position once the market pulls back toward the late March level.

Jim

Sources: Dwyer Strategy, 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.

I hope this note finds you and your loved ones safe and well.

On Friday March 27, 2020 the CARES Act became law.  This legislation is aimed at providing relief for individuals and businesses that have been negatively impacted by the coronavirus outbreak. Here’s a look at some of the key provisions included in the bill and what that may mean for you:

• Direct payments: Americans who pay taxes will receive a one-time direct deposit of up to $1,200, and married couples will receive $2,400, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples.  This will be based on your 2019 income tax return or 2018 if you have not yet filed 2019.  The payments should be direct deposited into the bank account you used on your tax return or a check will be mailed to your home.  For those receiving Social Security benefits, the payment should be directly deposited into the bank account where your SS benefit is paid.
• Unemployment: The program provides $250 billion for an extended unemployment insurance program and expands eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. It also extends UI benefits through Dec. 31 for eligible workers. The deal applies to the self-employed, independent contractors and gig economy workers. For anyone whose employment has been impacted, you should file for unemployment as soon as possible. Here is link to NJ https://myunemployment.nj.gov/  and NY https://labor.ny.gov/ui/how_to_file_claim.shtm
• RMDs suspended: Required Minimum Distributions from IRAs and 401(k) plans are suspended.  For those who can afford to not take their RMD (or take a lower amount) I would encourage you to consider doing that.  It will leave more capital in your retirement account to participate in the recovery.  Feel free to call me to discuss.
• Use of retirement funds: The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to Jan. 1. Withdrawals are still taxed, but taxes are spread over three years, or the taxpayer has the three-year period to roll it back over.  This should be a “last resort” step.
• 401(k) Loans: The loan limit is increased from $50,000 to $100,000.  This is also a “last resort” step.
• Student Loan Payments: Borrowers can request to delay payments on federal student loans until Sept. 30, 2020.¹ All federally-owned student loans will automatically have a 0% interest rate until then. Contact your federal student loan servicer to request forbearance. This does not apply to private student loans.

The IRS also announced the delay in 2019 income tax deadline from April 15^th to July 15^th.  This applies to both filing your return as well as making any payment due.  If you feel you are entitled to a refund I encourage you to still try to file your return now (assuming your tax preparer is available).

There are several provisions for small business owners in the CARES Act that I will address in a separate note.

As more information on this legislation and any future legislation is available I will share it with you.

Also note the IRS will NOT call you about this. Any call you receive is a scam.

Jim

 

Soruces: Forbes.com, TheBalance.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.

First, I hope this note finds you and your loved ones safe and well.

The financial markets, especially stocks, have rebounded sharply over the past 3 days.  This came on the heels of the fastest ever bear market decline in history.  So the question is – was that the bottom?  It was certainly “a” bottom but was it “the” bottom?

While this situation is different than the 2008-2009 financial crisis, or the 2001 Dot-Com bubble, or any other major market decline in the last 50 years,  I think it is instructive to look at history.  In each case, the stock market ultimately did find a bottom and then go on to, not only recover the decline but grow to new record highs.  However, the ultimate bottom of the decline occurred only after several rally attempts failed.

In 2008 the S&P500 fell 36% (1) before seeing about a 25% bounce (2) very quickly.  This was then just as quickly given back and the low was retested later in October (3). Then that led to another ~20% bounce (4) into November before a subsequent drop and a new low was made (5). The market rallied almost 30% into the new year (6) but then sold off ~28% into what was ultimately THE low in early March (7), some 56% below the level when the initial decline started.

Here in 2020, the S&P500 fell 35% from Feb 19, 2020 to the low just 2 days ago.  Over the past 3 days the market has bounced up 17%.  Mark Twain is noted for saying History doesn’t repeat itself but it often rhymes.

So what happens from here?  Could we follow the pattern from 2008-2009 or could we follow the pattern from the fall of 2018, when the S&P500 declined some 20% in 2.5 months then bounced and never looked back?  I would surely love a repeat of late 2018 but I believe the higher probability is something similar to 2008-2009.

The answer depends on when the growth rate of new COVID-19 cases peak and will the fiscal and monetary policy response be enough to mitigate the health and economic damage globally.

We are likely at least several weeks away from the peak rate of change in either COVID-19 cases or the resulting economic distress. Some lower lows may well lie ahead in the coming weeks/months. We continue to monitor the situation daily and adjust accordingly.

Feel free to call us with any questions.

Jim & DWM Team

Source: Fidelity Investments, Saut Strategy, Capital 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.

Bonds are viewed as investors’ safe money, and with good reason. The graph below shows that since the inception of the Bloomberg Barclays U.S. Aggregate Bond Index in 1976, there have only been 3 calendar years in which the Index had a negative total return—the worst of which was in 1994, which experienced a negative return of -2.92%.

This doesn’t mean that there haven’t been periods of time when bonds have struggled—there certainly have been. During times of panic, bonds can be scary, too. This was happening over the last two weeks. This was similar to the panic selling during the 2008-2009 financial crisis, and again in the energy driven sell-off in corporate bonds in 2015 and early 2016, and in the fourth quarter of 2018.

In our opinion, investment grade corporate bonds and high-quality municipal bonds have been sold in order to calm panicked investors’ frayed nerves. In essence, investors have thrown the baby out with the bath water.

This week the bond market has returned to more normal behavior. There are two reasons for this, (1) the Federal Reserve announced on Monday 3/23/2020 a massive monetary package to support the bond market, and (2) most of the over-leveraged hedge funds and institutions that were selling over the last 2 weeks appear to have cleared their trades.

We believe the current dislocations in the bond market are behind us, and that bonds will continue to provide income and will slowly return to fair value.

Source: Clark Capital Management

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.

We, the entire world, are facing a historic situation. The soundness and safety of our lives and those of our friends and families is threatened in a fashion which is uncommon in our history though not unprecedented. Decades ago, the Spanish Influenza and the polio epidemic, and more recently SARS, H1N1, MERS, Zika stand as examples where we have pulled together to not only survive but ultimately conquer the threat to our common welfare.   The chart below shows stock results during several medical shocks over the last 40 years.

The Federal Reserve cut rates on Sunday night to basically zero, and announced a $700 billion Quantitative Easing (QE) program.  The Fed is also coordinating with the Bank of England (BOE), Bank of Japan (BOJ), European Central Bank (ECB), and the Swiss National Bank (SNB) to boost liquidity globally. This coordinated approach by monetary authorities is a big positive.

Now it’s time for policymakers to get their act together.  Monetary policy alone is not enough, and a coordinated fiscal policy is needed to stem the economic deterioration from the Coronavirus response.

The markets appear to be pricing in what is known (economic and earnings slowdown) and what is feared (unknown number of coronavirus deaths and economic recession/depression). Identifying an exact bottom in the markets is nearly impossible, but much like in December 2018, the market seems very oversold. Until the spread of the disease is arrested, we will be in uncharted waters as to the length and severity of the human and economic impact. We expect continued volatility in the markets in the short-term. As such, we continue to de-risk portfolios. We remain hopeful the current situation is temporary, will reverse once the virus is under control,  and will not have long-lasting effects.

We take solace that our planning and investment process has dampened the impact for our clients. We renew our commitment to always do our very best for you. Together, we can navigate this historic situation.

We encourage everyone to remain positive and practice prudence for the protection not only of your health and that of your family and friends but also for our neighbors and communities.

 

Sincerely,

Jim and everyone at Directional Wealth Management

 

 

Sources: Guggenheim Investments, Clark Capital Management, Transamerica

 

 

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.