Many clients have been asking us why the stock market has recovered so strongly when the news concerning the economy and Covid-19 is taking a turn for the worse. We know the economy has been temporarily crippled, the unemployment rate has skyrocketed and there is civil unrest in many major cities. The stark truth is that this information is well known in the markets and has already been factored into today’s prices. What is propping everything up is the fact that the government has printed trillions of dollars and some of this money is leaking into the stock market. Can anyone remember a time when the government literally printed checks and handed them out to people as if it were Halloween? Unprecedented.
Happy Fall! I say this as it is over 80 and humid to be followed with temps in the 40’s later tonight. Only in New England! We spoke in our last quarterly newsletter about navigating through this economic and political environment like a pilot flying IFR (instrument flight rule) where visibility is low and the pilot can’t see the runway. Unfortunately, the skies have yet to clear and the fog is even thicker than before. Adding to the trade war with various overseas nations and the political bickering in Washington is now impeachment proceedings against the President. Remarkably, the stock market has taken all of this in stride and was up around 18% year-to-date. The past two days have been a different story. We mentioned earlier how interest rates have been in a free fall for much of the past several months, at the same time the stock market was hitting new highs. This seemed a bit peculiar to us as interest rates typically increase when the economy is strong and the stock market hitting new highs. Economic reports of the past few days are pointing to a weakening economy via contracting industrial production numbers. This in itself doesn’t necessarily mean anything bad is going to happen. Industrial production fluctuates month to month based on a number of factors including seasonality, temporary plant shutdowns due to re-tooling/modernization, weather anomalies and other factors. Having said that, given all of the other worries investors have been fretting over these past few months, the industrial production reading may be giving folks reason to reassess how much risk they are taking within their portfolios.
As this letter is being penned on this first day of April the sun is shining bright and the temperature is mild, allowing one to get out of the house and take a walk in the neighborhood or in an area park. Given the happenings of the past five or six weeks, for many of us getting outside and enjoying nature is one of the few things we are still able or permitted to do.
To our GSB Wealth Management clients,
One of the aspects of the recently passed $2 Trillion CARES Act was the waiver of the Required Minimum Distribution for IRAs for 2020. The link below provides you with additional information but in all cases we urge you to seek the advice of your personal tax professional as the waiver does not apply to every type of IRA. If you do not have a tax professional with whom you can consult please feel free to contact us and we can offer you guidance in finding a tax professional.
Link to AARP website: aarp.org/money/investing/info-2020/cares-act-retiree-tax-benefit.html
Thank you for the trust you continue to place in GSB Wealth Management.
Your GSB Wealth Team
The coronavirus is now our experience, not simply a news story impacting foreign countries. The swiftness with which the exponential spread of the virus has impacted the economy and our citizens’ businesses and employment is startling. The stock market (i.e. investors) is assessing and reacting daily to the potential economic impact our country faces. And the volatility and declines are unnerving. Last week the S&P 500 index was down -15% and is now down -28% in 2020 and -16% over the past year. Not surprisingly as Americans restrict their activities to combat the spread of the virus, businesses in the retail, leisure and hospitality, and transportation sectors have been hit the hardest in the market.
This Time is Different – Just Like All of the Other Times
“This time is different” – is the typical investor sentiment when one is in the middle of the volatile market swings that result from exogenous shocks to the world equity markets. And while each episode does indeed have their own unique characteristics, they share similar traits regarding their outcomes. Broadly speaking, exogenous shocks from previous viral outbreaks go through phases of discovery, uncertainty and reaction to that uncertainty. This is followed by increasing clarity of the situation leading to a decreasing level of uncertainty and finally the market’s reaction to this decreased uncertainty.
The spread of the coronavirus beyond China has unnerved the U.S. stock market this week and threatens to temporarily slow economic growth overseas and potentially here in the U.S. Like many virus outbreaks of past years, think SARS or H1N1, we believe the coronavirus will ultimately be contained and economic conditions will return to normal.
As with past flu outbreaks, the reaction in the stock market can be sharp yet relatively short-lived. Economic growth temporarily slows as people hunker down and stay indoors, as we have seen in several cities overseas. After large gains in stocks in 2019, it is our feeling that the stock market needed a breather and the coronavirus has provided just that catalyst. Like past flu outbreaks, a 5% to 10% correction in stock prices can be expected, and we are right in the middle of that range as this note is being penned.
Investment portfolios at GSB Wealth Management consist of high-quality instruments and are well-diversified over numerous asset classes and economic sectors. We strongly feel that sticking to the plan and not panicking in situations such as these is the best course of action. Please call if have questions or would like to discuss your accounts in greater detail.
Happy winter! No snow in sight and hovering around 50 degrees in January isn’t a bad thing, if only the sun could make an appearance more than once a week.
We have talked in past newsletters about low visibility trying to navigate through the current political and economic environment. Just to prove everybody wrong, U.S. stock markets had one of their best years in recent memory. Here is an old axiom that goes like this – “bull markets like to climb a wall of worry”. I suppose there is enough to worry about to propel the stock market to levels not one market prognosticator saw coming on January 1, 2019. We enter 2020 with a ton of market momentum behind us and economic fundamentals that appear to be the best in over a decade. We still sense a good deal of pessimism among individual investors, which may allow the market to move higher in 2020 despite the U.S. taking down the highest Iranian military official, just announced on the news this morning. Our country’s sabre rattling around the world, whether justified or not, is concerning given many of these countries have nuclear capabilities of some degree.
We finished the March 31 newsletter with the statement "now is the hardest time to invest". We begin the current edition with "now is the hardest time to write a newsletter". We will explain in a few minutes!
We all must admit that the stock market can be a confounding creature. After looking like it was going off a cliff late last year, the S&P 500 has logged a gain of 18% year-to-date. I can assure you no Wall Street strategist saw this coming! We all know by now that stocks go up by around 10% per year on average going back a hundred years. Having said that I have never seen the stock market go up by exactly 10% in any one given year. As Warren Buffett himself once said “In the short term the market is a voting mechanism; in the long term it is a weighing mechanism”. With today’s technology millions of investors can vote (trade) by the split second. Our task at GSB Wealth is to sort through all the short-term noise and separate the wheat from the chaff and not be overly concerned with the day to day wiggles in the stock market. In earlier newsletters we posited that the current economic expansion and stock bull market might carry on longer than anticipated simply because the economy was so slow to recover after the last recession. Also be mindful that next year is an election year and the powers to be will likely do whatever is necessary to keep the economy growing and the stock market humming. You can envision here one of the episodes of the Rocky (a squirrel) & Bullwinkle (a moose) show from the 1960’s where Bullwinkle mimics a magician and tries to pull a rabbit out of his hat, but is first greeted by a bear, followed by a lion, a tiger, then a rhino before he finally gets the rabbit to appear. It isn’t unfathomable to liken this to our current trade and nuclear negotiations with China and North Korea where after several false starts and a lot of growling a miracle happens and agreements are signed.
Our previous quarterly newsletter written at year end was titled "Welcome to the new reality", coming hot off the heels of a swooning stock market that cut a quick 20% off the major averages from late September through Christmas Eve. We discussed four reasons why the environment had changed, from rising interest rates to wage inflation to a change in investor sentiment. This newsletter could aptly be titled "Spring has sprung" as the stock market has recovered in a "V" formation and is right back up to the levels last witnessed at the high on September 20. I am sure a lot of you are wondering "what the heck is going on here". In our last newsletter we explained how investor sentiment had changed, i.e. not feeling so sure and confident about the market’s future prospects. It now seems investors are once again throwing caution to the wind. How fickle they can be.
"Wisdom is not a product of schooling but of the lifetime attempt to acquire it." ~ Albert Einstein