Election Recap – Let’s Make a Deal!

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.

Presidents and the Stock Market

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.

Source: Bloomberg and GSAM.

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

Source: Charles Schwab, Bloomberg, as of 10/2/2020. For illustrative purposes only.
The above chart shows what a hypothetical portfolio value would be if a hypothetical investor invested $10,000 in a portfolio that tracks the Dow Jones Industrial Average on 1/1/1900 under three different scenarios: a Republican presidential administration; a Democratic presidential administration; or staying invested in the market throughout the entire period noted. Chart does not reflect effects of fees, expenses or taxes.

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.

Weekly Market Notes – September 14, 2020

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 9/11/201 WeekYTD1 Year3 Year5 Year
Dow Jones Industrials (TR)-1.61-1.344.4410.4013.71
NASDAQ Composite (TR)-4.0621.7634.1520.3018.92
S&P 500 (TR)-2.494.8013.4912.5113.52
Barclays US Agg Bond (TR)0.257.037.755.164.32
MSCI EAFE (TR)1.45-5.212.401.504.97
Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond, NASDAQ and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. (TR) indicates total return. MSCI EAFE returns stated in U.S. dollars.

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

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright September 2020. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 3239947.1

Market Update 4-20-2020 – Epic Battle

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.

Market_Update_4.20.2020

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.

Market Update – April 9, 2020

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 23rd, 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.

market_update_4.9.2020

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.

CARES Act – Coronavirus Aid, Relief, and Economic Security Act

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 15th to July 15th.  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.

Market Update 3-26-2020 – Was That The Bottom or Just A Bounce?

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.

Bond Blues

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.

market_update_3.25.2020

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.

Market Update – March 16, 2020 Historic Situation

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.

Market_Update_3.16.2020

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.

Market Update – March 12, 2020 – Woeful Response

The financial markets, and people in general, are looking for strong leadership and an ambitious and coordinated response from our elected leaders.  Sadly, the response last night was woefully inadequate.  As my mother says – a day late and a dollar short.

I do expect Washington to wake up and do something significant to mitigate the economic damage.  The question is when do they finally get their act together and how big do they go.

As my note yesterday indicated, I am somewhat comforted by the fact that the US economy was in a very good position before the onset of the coronavirus.  I am starting to see positive signs of activity returning in China and South Korea. Once coronavirus worries start to subside and global economic activity improves, we will likely see stock prices moving higher. At this point, however, there is not enough evidence to suggest such a recovery is at hand.

We have officially entered a bear market today.  While very stressful, they are not uncommon, with the last one occurring just 18 months ago.  Also, bear markets in stocks do not always lead to recessions in the economy.  Of the last 16 bear markets, 7 have led to recessions, while 8 have not.  I keep this quote on my desk:

“For those properly prepared, the bear market is not only a calamity but an opportunity.” Sir John Templeton

 

I remain confident your financial plan has you properly prepared and that we will be able to take advantage of the opportunities that will be available when we get to the other side of the current crisis.

 

Try to remain calm, focus on your family and their health, and trust we are doing everything in our power to navigate your finances through this storm.

 

 

Sources: Ned Davis Research

 

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.