 The S&P 500 Index finished down about 1.3% from the previous week’s close. Volatility in both equity and fixed income markets has abated somewhat, but remains high. Here what you need to know from this week's data.
1) Corporate CEO's Claim a Lack of Visibility: Earnings reports this week did nothing to quell uncertainty about the future. 2) If You Can't Make It Print It: Many Americans are not making money as U.S. unemployment claims continued to rise, Thursday’s initial unemployment claims report showed 4.4 million Americans filing for first-time benefits, bringing the five-week total to about 26.5 million. Meanwhile the printing press is operating at full capacity as policymakers in the U.S. and Europe reaffirmed their willingness to backstop the economy and financial markets. U.S. lawmakers enacted a $484 billion Coronavirus relief package that will replenish the Payroll Protection Program (PPP), provide economic aid to hospitals, and expand testing capacity in the United States. This fourth bill brings the U.S. fiscal response to nearly $3 trillion so far, with more emergency aid anticipated. 3) Georgia On My Mind: The first businesses were allowed to reopen in some states this week, including retail stores in South Carolina and salons, barbershops and tattoo parlors in Georgia. While the logic of the move can certainly be debated it is hopeful in the sense that at least some portions of the country believe they are ready to restart their economies. The hope is that the COVID-19 crisis may be short-lived. Progress is being made but there are very few signs that a full-fledged cure or vaccine is at hand. Social distancing and mass closures appear to slow the exponential spreading of the virus considerably. While very effective in saving lives, those measures come with immense economic costs. The productive output of the global economy has ground to a near-total halt. As the virus appears to have peaked in Asia and is starting to show signs of peaking in Europe, I am hopeful the U.S. will also peak shortly. Then what? From a health standpoint, the answer depends on whether a cure or vaccine is discovered. A vaccine would lead to a sharp and immediate recovery known as V shaped recovery. Let's however deal in reality, there are more likely two short term outcomes from where we are now. First outcome, the spread of the virus remains significantly curtailed and the country gets widespread testing in place. Second, the bleaker scenario with no cure and not enough testing. In either scenario there will be some recovery, but most people will dramatically alter their everyday life. Such a change will radically reshape the outlook for human behavior on a vast scale until a vaccine is ultimately found. Just ask yourself, are you ready to stand in a crowded elevator, hop on a packed train, or stand shoulder to shoulder with other fans at a sporting event or concert. As you consider those scenarios, also consider their respective economic impacts. The first scenario, a return to a new normal with adequate testing, offers a higher probability of bringing about a faster recovery. This is known as a U-shaped recovery as the damage already done is not easy to overcome so quickly but we do get back to where we were at a slightly more moderate pace. A U-shaped recovery entails a prolonged period of slower to negligible growth versus a V’s sharp reversal higher of growth. I fear that in the second scenario, no cure/not enough testing it will look much more of an L-shaped recovery. An L-shaped recovery is a type of economic recession and recovery characterized by a steep decline in economic growth followed by a very slow stagnate recovery. At this point it is impossible to know which scenario will happen or in the words of Winston Churchill, “It is a mistake to try to look too far ahead. The chain of destiny can only be grasped one link at a time.” One positive that is coming from this crisis is that people are rethinking their consumption habits, I am noticing in conversations that the value of frugality is being relearned. Early in my career I worked with several Great Depression Era survivors. Their economic and financial behaviors are not normal by our standards today. What I saw across the board with these Depression survivors was regardless of their financial standing, they tended to save and were never shy about finding the best deals, picking up a penny or using a coupon. Some of these people were millionaires but you would not have any clue by looking at their lifestyles. During this crisis, I am reminded of an appointment I had about twenty years ago with one of these clients. I was at her house and she said her fridge was not working and she had an old ice box on the kitchen floor she was using to keep her perishables from spoiling. She had plenty of money and I asked why she had not bought a new fridge and she told me "She was raised to use it up, wear it out, make do or do without.” If as a country our attitudes toward saving improves I believe it will be a long term positive. Feel free to call me! As always, stay safe and I look forward to meeting with you once things get back to normal. I am here to help at any time. If you would like to schedule a phone appointment with wealth manager Stephen Caruso. I have included a link to my calendar below and you can self schedule. https://booknow.appointment-plus.com/b8hh5y90/ Legendary investor, Benjamin Graham, explained the stock market in the following way: “In the short run, the market is a voting machine, but in the long run, it’s a weighing machine." What he meant was short term stocks are greatly influenced by news, trends, and the emotions of investors (fear or optimism). But in the long term, stock prices are determined by future expected earnings. Since the emergence of COVID-19, the stock market has been acting more as a voting machine and less as a weighing machine. Swinging down in March on fear and rallying so far in April on optimism that the curve is starting to flatten. The market upswing continued this week and we have made back almost all that was lost in March. Friday's move higher was based in large part to a news report that patients who are getting an experimental drug (remdesivir) have been recovering quickly, with most going home in days, The patients taking part in a clinical trial of the drug have all had severe respiratory symptoms and fever, but were able to leave the hospital after less than a week of treatment, News that we may have an effective therapeutic is encouraging because it could potentialyl push forward the time table for getting life back to normal. For those in at risk groups life won't likely normalize until we have a vaccine but having an effective treatment would do wonders for the overall psychology of the country and the world. At the moment the "voting machine" is running on optimism.
Eventually, likely once we start reopening parts of the economy the markets will start to act more like a "weighing machine". The news on Friday impacts not just the short term optimism but could influence the long term economic data. Why? Having an effective treatment likely takes the worst case scenario for markets (a prolonged shutdown or return to normalcy) off the table, and therefore changes my view by reducing the probability that the market will take out the March lows. It does not mean that the volatility is over or that we won't still have substantial drops in the coming days. The reason is the "weighing machine" is still broken. Investors can’t accurately quantify the impact that the shutdown is having on earnings until we get reopened. There’s not enough information available to accurately project what demand and consumer behavior will look like once we reopen. It means that at the moment, stock prices are being determined based on incomplete data and therefore, those prices are unstable. As new information emerges, the "weighing machine" side of the market will take it and project future earnings and this causes adjustments to a stocks fair price. Spikes in stock prices – both up and down – will occur as markets seek the “right” price for every stock. To that end, the new information we received this week confirmed what was already assumed, here's what we learned:
So what's the moral of the story? Be excited about the progress on the public health side of the crisis and be optimistic that better days are in front of us. However, don't get too excited about the comeback in your growth assets as the markets still have no way of knowing how long it will take for economic activity to resume to normal or what the impact of all this will be on the economy and on corporate earnings. As always, stay safe and I look forward to meeting with you once things get back to normal. Financial Advisor Stephen Caruso is here to help at any time. If you would like to schedule a phone appointment. I have included a link to my calendar below and you can self schedule. https://booknow.appointment-plus.com/b8hh5y90/ The holiday-shortened week saw a rise in U.S. markets. The positive momentum corresponded with news that some of the states and countries hardest hit by COVID-19 may be reaching plateaus in the number of cases they’re experiencing. Markets were also buoyed by the Fed’s announcement of additional stimulus. However, there is still great uncertainty about the health outlook and the economy, so market volatility will continue. U.S. economic data this week provided additional perspective on the global shutdown’s impact on the domestic economy. Thursday’s initial jobless claims report showed that 6.6 million people filed a new claim for unemployment benefits last week. The prior week’s figure was also revised upward, bringing the three week total to nearly 16.8 million. (By comparison, the same three-week period last year saw a total of 630,000 new jobless claims.)
Markets will remain volatile and the best thing to do is stay the course and do nothing. However, for those who feel like they need more safety, if we continue to move higher this week it could be an opportunity to reduce risk if you are looking to replenish cash or liquid bucket assets. The S&P 500 is currently at 2776 we opened the month of March at 2900 if it is able to get back to that level it may be a short term top. I believe the markets will shift in the next week or two from moving on public health data to moving on economic data. Markets will be looking to see how long it takes for the unemployment number to peak. Many corporate earnings reports are scheduled to come out in the next few weeks. Markets are expecting weak earnings from the first quarter, and many companies have already announced that they will not be providing forward-looking guidance on performance. The reports will be worth watching to see what they reveal about conditions in various parts of the economy. How markets react to these revelations will provide a window into how long it will take for a meaningful recovery. As always, stay safe and I look forward to meeting with you once things get back to normal. Financial Advisor Stephen Caruso is here to help at any time. If you would like to schedule a phone appointment. I have included a link to my calendar below and you can self schedule. https://booknow.appointment-plus.com/b8hh5y90/  The long bull market in equities finally ended in the first quarter, and we cannot be sure that stocks won’t test their lows again, given the potential for further shocks either in the progress of the virus or numbers on the economy like the ten million new jobless claims in the last two weeks. At this moment, it is impossible to know what the economic recovery will look like without knowing the progression of the virus. Testing will be paramount, to that end we had good news this week The ID NOW COVID-19 test which is run on a lightweight box (the size of a small toaster) will soon be widely available. Because of its small size, it can be used in more non-traditional places where people can have their results in a matter of minutes, bringing an alternate testing technology to combat coronavirus. This process can cut testing wait time to as little as five minutes for positive results and 13 minutes for negative results. Abbott Labs is promising to deliver 50,000 ID NOW COVID-19 tests per day, beginning next week, to the U.S. healthcare system. Widespread testing with quick results will give us a much clearer understanding of the depths of the pandemic and can help us more effectively control the spread. Even with this positive news, 2020 will be a recession year and thus a very ugly year for corporate profits. I think we will see a slow return to economic activity and probably not the sharp quick recovery some are forecasting. If you remember back to 2001 most things here in NYC returned to normal but somethings were forever changed and became part of our new normal, like showing an id when we enter an office building or taking off our shoes and being screened at the airport. Social distancing will now become a part of our life and I would expect to see more people working from home. So what does it mean for you? We will likely see the death toll continue to spike in the coming week or two which will cause continued volatility in the markets. Do NOT try to trade these swings. The best thing to do is to stay the course. Assuming a positive scenario with increased testing and better control of the spread we can as a country gradually get back to business. Having experienced a couple of major bear markets in my career 2000-2002 and 2008-2009. I have seen pockets of extreme volatility but that has not often been indicative of the bottom. In the 2000 bear market it was most volatile in October 2001 post 9/11 and Enron scandal and in June 2002 when MCI Worldcom went bust but the market did not bottom until October 9, 2002. In 2008 the market was most volatile during the bailout of AIG and GM in October of 2008 but did not bottom until March 9, 2009. The lesson is don't try to time the bottom. Bear markets are a test of your resolve and they typically bottom when the majority of investors can no longer take any more pain and throw in the towel. I also wanted to quickly mention a couple of interesting items that are in the CARES act that was recently signed into law. Most of the news coverage has been about the direct stimulus recovery payments of up to $1,200 for individuals or $2,400 for married couples filing a joint return, with amounts increasing by $500 for every child. These amounts begin phasing out when individuals have $75,000 in adjusted gross income or couples filing jointly earn $150,000. The direct payments are not available for individuals and couples filing jointly who have adjusted gross incomes of $99,000 and $198,000, respectively. However, there are three interesting components of the legislation you may not be aware of: 1) REQUIRED MINIMUM DISTRIBUTION: To help provide relief for retirees, the CARES Act allows you to cancel 2020 required minimum distributions (RMDs) for distributions from 401(a), 401(k), 403(a), 403(b) and governmental 457(b) retirement plans and IRAs. Meaning if you don’t need the money to live on you can leave your retirement account alone and give it time to rebound. 2) RETIREMENT PLAN WITHDRAWALS: Penalties and withholding will be waived for qualified distributions from retirement plan accounts The CARES Act waives the 10% early withdrawal penalty and 20% withholding for coronavirus related distributions of up to $100,000 across all qualified retirement plans (if your plan allows) and Individual Retirement Accounts (IRAs). Distributions will be subject to taxation and you will have the option to pay taxes due over a three-year period. The Act also allows you to recontribute within three years regardless of that year’s contribution limit. This will make it easier for you to replace the amount of your distribution in your retirement account. Consult with your personal tax advisor before taking a distribution. 3) RETIREMENT PLAN LOANS: Through Dec. 31, 2020, the CARES Act doubles the current retirement plan loan limits to the lesser of $100,000 or 100 percent of the participant's vested account balance for the next six months. Generally, loans are limited to the lesser of $50,000 or 50 percent of the participant's vested balance and must be paid back within five years. Individuals with an outstanding loan from their plan with a repayment due between March 27, 2020, and Dec. 31, 2020, can delay their loan repayments for up to one year. I am Stephen Caruso, Best Selling Author and Financial Advisor, here to help at any time. If you would like to schedule a phone appointment. I have included a link to my calendar below and you can self schedule. For those of you who prefer an in person meeting I am now scheduling in person meetings as well, please email me if you would prefer an in person appointment. https://booknow.appointment-plus.com/b8hh5y90/ |
Stephen Caruso
|
RSS Feed
STEPHEN CARUSO
President & Founder
Laurel Wealth Solutions
President & Founder
Laurel Wealth Solutions
|
Licensed Insurance Professional.
Stephen Caruso is an Investment Advisor Representative offering investment advisory services through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe"). Belpointe is an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe Asset Management offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Belpointe Insurance, LLC. Important disclosures related to Belpointe are available at http://www.belpointe.com. Additional information pertaining to Belpointe’s registration status, its business operations, services and fees and its current written disclosure statement is available on the SEC’s Investment Adviser public website at https://www.adviserinfo.sec.gov/.
AR-4241 | 18296-2018/12/11
Stephen Caruso is an Investment Advisor Representative offering investment advisory services through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe"). Belpointe is an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe Asset Management offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Belpointe Insurance, LLC. Important disclosures related to Belpointe are available at http://www.belpointe.com. Additional information pertaining to Belpointe’s registration status, its business operations, services and fees and its current written disclosure statement is available on the SEC’s Investment Adviser public website at https://www.adviserinfo.sec.gov/.
AR-4241 | 18296-2018/12/11