Today’s email a bit shorter. Following last week’s email, when you read this information below and information on Jerome Powell’s remarks last week, I want to emphasize, that one bad Thursday, and now a bad Monday as I type this, is not the beginning of the dominos to tip over, knocking the next one down.
No Teleconference this Wednesday 6/17/20
Please check your junk/spam folder for any emails from [email protected] please. Kellie is Affinity’s Vice President. We are being told by some that they are not receiving emails when we have verified those emails are being sent to correct email addresses. We want to make sure you are seeing any invitation to the webinars, Community Café, and other Affinity communication.
Mon 6/8 +1.70%
Tues 6/9 -1.09%
Wed 6/10 -1.04%
Thurs 6/11 -6.90%
Fri 6/12 +1.90%
Last week -5.55%
Since 2/19 market high -12.75%%
Bond model you are in:
Last week +0.30%
Bond model last 30 days +1.95%
1. The news strikes again. As you will read below, it doesn’t take much in the news these days to completely swing the market. Some people thought the large one day swings were past us. Last Thursday following Federal Reserve Chair Jerome Powell speaking, the market dropped 6.9% in one day.
2. Jerome Powell, strikes again. So what gives? Why did the market sell even as Powell signaled no changes to rate hikes and Fed support for the securities markets? The Fed’s dour Summary of Economic Projections, issued alongside the FOMC’s statement yesterday is what sent stocks lower. One of other curious and potentially troubling developments for the market was Powell’s admission that the FOMC has been studying yield curve control. The practice has been taken up by the Bank of Japan since 2016. Before the corona virus outbreak, Fed governors Richard Clarida and Lael Brainard raised curve control as a potential model, and John C. Williams has talked seriously about implementing some form of yield curve control this year. One of the bright spots of Powell’s Q&A session was his avowedly pro-labor stance — all suggesting that if there is a real V-shaped recovery and labor markets recover, he is not going to raise interest rates because he doubts it will be inflationary enough to do so. “Basically, the Fed is determined to maintain adequate liquidity in the system and they are ready to do whatever is required from them. The bottom line is that the market needed a hug from the Fed and they got it.”
3. Forbes reports: Federal Reserve Chairman Jerome Powell spoke last week predicting a “long road” to economic recovery. Powell’s speech came shortly after U.S. Bureau of Labor Statistics released unemployment data for May indicating civilian unemployment dropped from a peak of 14.7% at end of April to 13.3% at end of May. Powell acknowledged the improvement in the unemployment rate but foreshadowed that the GDP would shrink by 6.5% in 2020. Along with Powell’s speech, the Federal Reserve published an economic forecast for 2020 to 2022. While the outlook for 2020 was grim, the forecast for 2021 suggests this will be one of the fastest recoveries in memory.
4. Bloomberg goes into more depth: Federal Reserve Chairman Jerome Powell will deliver a cautionary message about the economy and covid-19 when he appears twice this week on Capitol Hill. His remarks to lawmakers are widely expected to echo the mostly downbeat assessment he gave Wednesday after policymakers held interest rates near zero at a two-day meeting and signaled they’d probably stay there through 2022. His performance, which highlighted the hardships faced by millions of Americans who’ve lost work, drew criticism from a White House official for being overly negative. With the economy beginning to emerge from pandemic-provoked shutdowns and despite recent economic data offering some surprisingly bright points, Powell last week emphasized how many Americans are out of work and how long it may take to heal the labor market, especially for minorities hit hardest by layoffs. “The May employment report, of course, was a welcome surprise,” he told reporters during a virtual news conference on Wednesday. “We hope we get many more like it, but I think we have to be honest, it’s a long road. Depending on how you count it, well more than 20 million people displaced in the labor market. It’s going to take some time.”
a) Global 8,024914cases 436,209deaths
b) US 2,162,484cases 117,859deaths (4.79%, 5,386 increase from last week)
c) KS 11,124cases 245deaths
d) MO 16,428cases 895deaths
Highlights from analysts and economists
1. From JP Morgan
a. Lack of guidance has been a persistent theme throughout the first half of 2020. It started in March when the Federal Reserve (Fed) failed to release its Summary of Economic Projections (SEP) due to uncertainty, was followed by the withdrawal of, and lack of, 2020 earnings guidance from S&P 500 companies, as only around 20% of companies provided guidance in 1Q20 compared to closer to 50% of companies on average, and continued when the Chinese government did not provide a numerical target for 2020 GDP growth. However, as we saw last week with the Fed’s release of the SEP, the economic outlook is beginning to crystalize. Against this backdrop, the 2Q20 earnings season, which kicks off at the beginning of July, should provide some additional clarity, as companies provide information on their current standing, as well as guidance for the rest of the year, with the second quarter likely marking the bottom in S&P 500 quarterly profits. While recent improvement in the economic data and some preliminary success reopening the economy has supported the outperformance of cyclicals relative to defensives, it is important to recognize that right now, the market cares much more about the direction of the data, rather than the level. However, the data itself will likely be mediocre in the medium term, and as the rate of change slows, markets will be forced to focus on the fundamentals. This suggests that volatility is not behind us, and leads to a preference for quality companies with low leverage and higher profit margins, such as those in the technology, health care and consumer staples sectors.
2. From American Funds
a. Over three challenging months, coronavirus-induced lockdowns have wreaked havoc on the U.S. and global economies. Millions have filed for unemployment benefits. COVID-19 infections appear to have peaked in many places, but the risk of secondary outbreaks remain. Meanwhile, widespread civil unrest in many American cities has added a volatile new element to an already high level of uncertainty. Despite all of this, many stocks are down on a year-to-date basis but not necessarily out as many investors optimistically look ahead to an eventual recovery. Their hopes are underpinned by massive government stimulus measures and ultra-low interest rates. Some companies perceived to be benefiting from stay-at-home mandates — including e-commerce, video streaming and food delivery firms — have rallied in the face of the worst market and economic environment since the 2008–09 global financial crisis. “This is different than the 2008 financial crisis — we can see the other side of the valley,” says Lovelace, a portfolio manager with New Perspective Fund®. “It’s hard to know how wide the valley is, but I believe we will end up in a better place two years from now.”
3. From FS Investments
a. 2020 has offered markets a wild ride. As the pandemic crashed upon U.S. shores, financial markets fell into a bear market in just 16 trading days. The S&P 500 lost 34% of its value in just 5 weeks, with volatility exceeding the turbulence of the financial crisis in 2009. Aggressive Fed policy action helped calm the most acute volatility. This included slashing interest rates to zero and providing “unlimited” quantitative easing, which in just a few months has added $3 trillion to the Fed’s balance sheet, almost doubling its size. This extraordinary intervention was surely instrumental in fueling the recovery in equity prices. And recover they did! From the low on March 23, equities have steadily marched higher. As of Monday, June 8, the S&P 500 was up 0.05% for the year, just 4.5% below its February 19 high. Indeed, outside of the black swan event of the pandemic, the effortless recovery of the equity markets is probably one of the most unexpected outcomes of 2020.
- I am hosting a Social Security and income tax webinar twice this week. (Many of our new clients come to Affinity from this topic)
a. 75% on SS and 25% on taxes
b. Tuesday June 16th at 6:00pm
c. Wednesday June 17th 11:00am
d. These are by invitation, so if interested, please contact Stacy in our office so she can get you the link and ability to join in.
- Community Café is Wednesday, June 17 at 8:00am for 30 minutes. Topic will be: Charitable Giving
a. Will live stream on Facebook Live anyone who is friends with me on Facebook.
b. Email invitations were sent to join on the Zoom.com platform
c. Co-Hosted by Chris Toman and First Option Bank and Glenn Stockton of Stockton and Stern Law firm
d. Invitations will go out via email with a link to join, plus those who are friends with me on Facebook
- Estate Planning webinar on Tuesday, June 16th at 12:00 noon for 1 hour.
a. Pros and cons of a Will based estate plan
b. Pros and cons of a Trust based estate plan
c. Co-hosted by Glenn Stockton with Stockton & Stern Law firm
d. Interested in attending? Please email Stacy at [email protected]
- If you are still working, call your 401K company, (not your HR department of your employer) and ask if you have access to an “in-service rollover”. And if you do, let us know ASAP as there are potential large benefits that you don’t have at work in that 401K.Reminders:
1. Don’t forget that the news creates drama. The stock market moves for 2 reasons which are greed and fear.
2. Any service work you would like us to do for you, please email your request to us.Please feel free to share this email and/or the teleconference information with anyone you know as the best way to battle stock market anxiety is education.
Thank you for your time in reading these updates.
Please share them with anyone you want to help
Stay safe and stay healthy,