One day late, but want to wish all those Fathers reading, a great big HAPPY FATHERS DAY to you all. I got to see my parents for the first time since Christmas with all things Coronavirus. They have been isolated at their home in Lake of the Ozarks. We got to spend the afternoon with my family and Amy’s family outside enjoying a beautiful day.
A common question we get, clients think we have bought into stocks because they see their monthly statement or their online statement and some don’t realize that the mutual funds or ETFs you have, are all bonds. Mutual funds and ETFs do not mean stocks. Yes, there are stock mutual funds/ETFs, but there is also bond mutual funds/ETFs.
No Teleconference this Wednesday 6/24/20
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 6/15 +0.62%
Tues 6/16 +2.04%
Wed 6/17 -0.65%
Thurs 6/18 -0.15%
Fri 6/19 -0.80%
Last week +1.04%
Since 2/19 market high -11.85%
Bond model you are in:
Last week +0.31%
Bond model last 30 days +2.32%
1. Politics can be ugly. In a rally in Oklahoma, President Trump made a joke. It was not a good joke. He referenced with more testing will naturally result in more confirmed cases, so we should test less. That’s the short version of this. However the media wants to spin that and take it completely out of context. In my opinion, this is not a subject to joke about, and he should know that every little thing he says, will be magnified by the media. The media would do that to any President, however he does bring some of this onto himself.
2. Trump’s tough talk on China sparks fears of geopolitical crisis. President Trump’s inconsistent efforts to get tough on China are raising fears of a geopolitical crisis with the world’s second largest economy just ahead of November’s election. The fears among international relations observers have been magnified after Trump this week said he was open to a complete “decoupling” from China, signaling increasing tensions between the two countries at a particularly delicate moment.
3. Coronavirus update: U.S. death toll nears 120,000, with 24 states showing a rise in case tally trends. The global tally for cases of the coronavirus that causes COVID-19 rose to just shy of 9 million on Monday, according to data aggregated by Johns Hopkins University. The number of deaths grew to 468,567, while the number of people who have recovered reached 4.4 million. The U.S. continues to lead the world, with the case tally of 2.28 million and death toll of 119,977 more than double the next highest totals of 1.08 million cases and 50,591 deaths in Brazil. In the U.S., 622,133 have recovered, while 588,118 have recovered in Brazil. Within the U.S., there are 24 states that showed an increasing trend in cases this past week, with California, Texas and Florida leading the way, each with more than 4,000 new cases on Sunday alone.
4. A rapid phase of economic growth in the near term is almost inevitable given the degree to which activity crumbled in March and April, and we expect consumer spending to continue leading overall growth in the coming months. The recession has bolstered consumer fundamentals via extraordinary government transfers, the high degree of “forced savings” due to lockdown measures, extreme volatility in the labor market and the dynamics of consumer sentiment. The dominant market narrative is likely to toggle between the immediate economic bounce back phase — where broad equity exposure is our tactical preference — and a more volatile, sideways-moving period fraught with the downside risks – during which long credit positions would have attractive expected returns. A lack of clarity on the near-term direction of the dollar, combined with a rapidly progressing early business cycle phase, suggest spreading equity dollars evenly across markets.
5. From Wealth Advisor: The $3 trillion tsunami in Federal Reserve liquidity flooding the financial system this year is not to be overlooked as a factor in stock prices. Many economists and bankers (for instance, Barclays’ CEO) believe low interest rates and yields send capital flowing to risk assets with potentially higher returns. As a result, conditions are ripe for a bubble in asset prices and the inevitable market correction. The proof that there is a stock market bubble is that stock prices have decoupled from corporate financials over the last year. Instead, they’re moving together with other asset classes over twice as much as they did during the Dot Com bubble. Legendary British billionaire investor Jeremy Grantham said this week that the rebound in stock prices is “crazy.” He says it’s a stock market bubble that might prove painful when it collapses: “My confidence is rising quite rapidly that this is, in fact, becoming the fourth ‘real McCoy’ bubble of my investment career.” The 81-year-old successfully predicted three previous market bubbles in his career: Japan’s in 1989, the Dot Com crash in 2000, and the housing market crisis in 2008. In the last two U.S. Mohamed El-Erian, chief economic adviser at Allianz, warned this week about zombie companies. He said the flood of Fed cash might be “keeping them alive today, but it comes at a cost.” He said the Federal Reserve’s actions this year prevent markets from allocating capital efficiently: Zombie markets are markets that are completely mispriced, they’re completely distorted. Why? Because there is a policy view that you need to subsidize everything in markets for now. Charles Schwab & Co. Chief Investment Strategist Liz Ann Sonders warned in May that zombie company stocks have never outperformed the S&P 500 by more than they did in April. It’s another sign there’s a stock market bubble brewing. In January, the median Enterprise Value (EV) to sales was twice the Nasdaq bubble peak levels. That was before the pandemic crisis ground the economy to a crawl. And the Buffett Indicator shows the total U.S. stock market cap relative to GPD is higher than just before the tech stock crash and 2008 financial crisis.
Global 9,079,104 cases 471,257 deaths
US 2,357,312 cases 122,259 deaths (+3.73%, 4,400 increase from last week)
KS 12,226 cases 259 deaths
MO 18,355 cases 979 deaths
Highlights from analysts and economists
A return to normalcy following the Covid-19 pandemic could come within a year, but people need to tamp down their expectations for typical summer travel and activities, Dr. Anthony Fauci told British newspaper The Telegraph in a story published Sunday. The latest time frame comes on the heels of a week that saw the national case count cross 2 million. Cases have increased in 18 states over the past week, with six states reporting more than a 50% jump. This has led some government and health officials to hit pause on reopening efforts. More than 115,000 people have died in the United States as of early Monday morning, according to data from Johns Hopkins University. The number of hospitalizations — a key indicator for measuring the impact of the virus — has jumped in some states, including Texas and Oregon. Officials are saying their systems are being taxed once again by the virus. In Phoenix, Mayor Kate Gallego said that she was worried about hospital capacity as the number of cases continues to grow. “We have had so many of the records you don’t want to be hitting for Covid-19 from my perspective. We opened much too early and so our hospitals are really struggling,” Gallego said during a panel discussion last week.
From JP Morgan
In recent weeks, as stocks have rebounded strongly from their March lows, many have asked if the market has come too far, too fast. Thursday’s sharp selloff may have been an expression of that concern. However, the answer to that question, like pretty much all questions of valuation, boils down to an assessment of expected return and risk. As we have argued before in recent months, there are good reasons for a positive view on expected return.
- First, the sectors of the economy that have been most badly affected by the pandemic are not the most important sectors to the stock market.
- Second, this should be a bookended recession – starting with a virus and hopefully ending with a vaccine. If earnings can set new, all-time highs in 2022, then given the long-term nature of the cash flows implicitly embedded into stock prices, equities should not be marked down too much to account for weakness this year and next.
- Finally, aggressive action by the Fed and other central banks have pushed interest rates to unattractively low levels, leaving investors with few alternatives to stocks.
However, when it comes to risk, the current pricing of equities does suggest complacency. After all, stocks are supposed to hate uncertainty and 2020 is yielding a bumper crop of it. While the greatest danger to markets usually lies in events no one predicted, there are plenty of plausible risks that are worth reviewing, including the following six possibilities:
- The pandemic sees a “second wave”
- A safe and effective vaccine isn’t produced in a timely manner
- Congress fails to pass further coronavirus relief this summer
- A messy election produces a contested result
- Taxes and interest rates rise in the aftermath of the election and pandemic, or,
- Over-easy fiscal and monetary policy triggers a financial crisis within a few years.
From American Century
At its June policy meeting, the Federal Reserve (Fed) pledged continued support to a U.S. economy battling the near- and longer-term effects of the coronavirus crisis. Fed Chair Jerome Powell said the central bank is committed “to do whatever we can for as long as it takes” to restore the nation’s economic health in these unprecedented times. We believe the central bank’s “whatever it takes” approach remains appropriate. While the Fed is employing all policy tools at its disposal, some virus developments are beyond policymakers’ control. These developments continue to influence economic data. Since early March, the Fed launched—and subsequently expanded—numerous programs to help support the economy and stabilize financial markets. We believe these facilities will continue to improve liquidity in several key markets. The additional liquidity should help reduce stress on credit-sensitive fixed-income assets. In addition to releasing its monetary policy statement, the Fed shared its first set of 2020 economic projections during the June meeting. Policymakers expect the U.S. economy to shrink 6.5% in 2020, due to the unprecedented nationwide shutdown of business activity in response to the pandemic. We agree with the Fed’s cautious economic outlook. There’s lingering uncertainty surrounding the short- and longer-term effects of the virus on consumer and business behavior. For example, while recent labor market gains are encouraging, jobs data have a long way to go to reach pre-pandemic levels. We believe the Fed’s June meeting represents a holding pattern for the summer. We expect the next shift in policy to take place at the Fed’s September meeting. Of course, this depends on virus developments and how the economy is faring.
From American Funds
The decade-long economic expansion did not end with a whimper. The coronavirus brought it to a screeching halt. U.S. gross domestic product (GDP) fell 5% in the first quarter, and a steeper decline is likely in the second. Consumer spending, which accounts for about two-thirds of the U.S. economy, slid 13.6% in April, the steepest decline on record. More bad news lies ahead in the short term, starting with the tragic human cost. Historic unemployment will likely have a lasting impact on the economy, and many businesses are failing. The path to economic recovery will depend on the course of the virus and public health response, and stock markets may bounce around for an extended period until the economy finds firmer footing. “The U.S. stock market appears to be priced for a quick economic recovery,” says U.S. economist Jared Franz. “But I expect a more gradual U-shaped recovery with bumps along the way,” he explains. When will near-term pain give way to long-term gain? “Over the next six months, we will see some challenges, and I expect consumer demand to remain sluggish for some time,” says equity portfolio manager Claudia Huntington, Co-President of The New Economy Fund® and a former Co-President of AMCAP Fund®.
Community Café is Wednesday, June 24th at 8:00am for 30 minutes. Topic will be: “How to avoid going broke in a nursing home”
- Will live stream on Facebook Live anyone who is friends with me on Facebook.
- Email invitations were sent to join on the Zoom.com platform
- Glenn Stockton of Stockton and Stern Law firm and Mark Roberts with Affinity Asset Management speaking.
- 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 23rd at 12:00 noon for 1 hour.
- Pros and cons of a Will based estate plan
- Pros and cons of a Trust based estate plan
- Co-hosted by Glenn Stockton with Stockton & Stern Law firm
- 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.
- Don’t forget that the news creates drama. The stock market moves for 2 reasons which are greed and fear.
- 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.
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Stay safe and stay healthy,