Happy Monday to everyone.
Double good news to start this week off: Royals won 4 in a row, while sweeping the Twins. And the Chiefs are 31 days away from their first game which is a home game, Thursday night on 9/10/20 against the Texans.
Bad news as well. Congress did not agree on the next round of stimulus. This is the problem with a divided congress, things take longer to negotiate and ultimately agree on…
President Trump took the unusual — and highly controversial — step Saturday of attempting to provide additional economic relief to millions of Americans on his own, without the approval of Congress.
More details below in Tid Bits.
Performance DJIA:
Mon 8/3 +0.89%
Tues 8/4 +0.062%
Wed 8/5 +1.39%
Thurs 8/6 +0.68%
Fri 8/7 +0.17%
Last week +3.80%
Since 2/19 market high -6.52%
Bond model you are in:
Last week +0.27%
Comparison:
Bond model last 30 days 1.22%
Tid Bits:
1. After two weeks of negotiations, the next stimulus bill appears to have stalled in Congress. For almost two weeks, Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows have been negotiating a deal with Senate Minority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA).
They had hoped to reach a deal on Friday but that deadline has since passed. We have also learned that the two sides are still quite far apart on many aspects of the package. It is with that in mind that President Trump has decided to use executive orders to implement certain parts of the next stimulus package. It is our understanding, with President Trump’s signing of executive order, does NOT make these items below in affect. There is more that has to be done for this to be finalized. More to come on this… It is likely Trump will face a legal challenge over these actions. The U.S. Constitution gives Congress the power of the purse. Any changes to taxes or spending are supposed to come from Congress.
2. Payroll Tax Holiday
a. The President signed an executive memorandum, titled the “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster,” that will give a payroll tax holiday to employees earning less than $104,000 per year from September 1st through December 31st.
b. The President said that he would direct the Treasury Department to allow employers to “defer” the payment of payroll taxes and then direct the Secretary of the Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”
3. Eviction Moratorium
a. The eviction moratorium created by the Cares Act also expires at the end of July. It protected renters who were in buildings that had mortgages secured by the federal government.
b. During the negotiations, Republicans offered to include an eviction moratorium that would last through December 15th.
4. Enhanced Unemployment Benefits
a. The $600 per week federal unemployment benefit created by the Cares Act expired last month and negotiators had been working towards extending a lesser amount.
b. During those negotiations, we learned that Republicans proposed a $400 per week federal unemployment insurance benefit through December 15th. This was higher than the $200 per week benefit
5. Student Loan Repayment
The President signed an executive memorandum, titled “Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic,” that would extend that policy through the end of the year.
Facts:
Coronavirus
Global 20,055,099 cases 734,561 deaths
US 5,200,313 cases 165,619 deaths (+4.57%, +7,244 increase from last week)
KS 31,092 cases 381 deaths
MO 58,974 cases 1,397 deaths
Highlights from analysts and economics
1. From Barry Bannister of Stifel
Barry Bannister, head of institutional equity strategy at Stifel, called for stocks to bounce back aggressively just before the S&P 500 SPX, +0.13% notched its March 23 low. But the Wall Street veteran, on Friday, said he now thinks the market has overshot, fueled by a surge in liquidity and low real yields, which have driven “an extraordinary P/E-led bull market” off the March low. The strategist said the unprecedented stimulus efforts undertaken in response to the COVID-19 pandemic, boosting money supply relative to financial assets, are largely responsible for the market’s V-shaped recovery. The S&P 500 plunged by around a third from its all-time closing high on Feb. 19 through March 23. It has since roared back, ending Friday just 1% away from its peak.
2. From Bank of America (sorry, this one is technical)
a. 3 market trends suggest investors should take defensive strategies through August
i. The August-to-October period is historically bearish, with the S&P 500 posting an average loss of -0.03%, the team said.
ii. A handful of technical trends could be enough to justify traders taking a more defensive stance this month, according to Bank of America analysts.
iii. The stock market’s backdrop remains bullish, the team led by Stephen Suttmeier wrote in a note to clients. The S&P 500’s 50-day moving average surpassed its 200-day moving average in early July, forming a Golden Cross. Combine the strong upswing with improving sentiment, and the index could reach 3,800 by mid-2021, according to the analysts.
iv. Yet August could put the market’s rally on hold before it resumes in the fall. This month kicks off a historically bearish three-month period, where the S&P 500’s average loss hits -0.03%.
iv. The upcoming US presidential election stands to add even more risk, as past elections show summer surges giving way to fall declines. For investors weighing whether to secure gains, August may be the time, the bank said.
b. Here are three signals Bank of America’s analysts see as tactical risks this month.
i. Options complacency: The ratio of Cboe put-to-call options over the past 25 days reached a year-to-date low last week, revealing an overbought environment in the stock market. Complacent put-call ratios “are aligned with a bearish seasonality moving into August, the team said. The gauge now sits at its lowest since June 2014. If history repeats itself, sentiment will quickly turn less optimistic and investors will kick off a wave of selling.
ii. Advance-decline breadth: The New York Stock Exchange’s advance-decline line tracks the difference between rising and falling stocks by each trading day. Bond proxies have recently driven the NYSE all issues A-D line to new highs. Yet the exchange’s stock-specific A-D line remains well below its February peak. The latter A-D line’s weaker gains point to a “narrowing breadth for stocks in the broad-based NYSE” and suggests defensive stakes in Treasurys will outperform in August, the team wrote.
iii. Shrinking percentage of high-rallying stocks: Though tech giants have pushed major indexes back to year-to-date gains and recently soared on rosy earnings, the rest of the market isn’t faring as well.
iv. A smaller share of S&P 500 stocks are trading above their 10-, 50-, and 200-day moving averages this month compared to the start of the June-to-August period, Bank of America said. This further reveals a narrowing of the market’s breadth, particularly as stocks head into a historically challenging period. The percentage of stocks above their 50- and 200-day moving averages also reached lower highs at the February peak, meaning fewer stocks were responsible for pushing the market higher. These “bearish divergences” in breadth indicators indicate the market’s rally is increasingly on the back of a select few companies, the analysts said.
2. From JP Morgan
a. Notes on the Week Ahead
i. New GDP data released last week confirmed that the 2020 recession has been the deepest in over 70 years, with a peak-to-trough decline in real output of 10.6%. This, of course, was already evident in monthly data on consumption, employment, trade and inflation and has been reflected in a very sharp decline in corporate profits. Consumer confidence fell in July as it became clear that the pandemic, far from fading away, has intensified over the summer, at least in terms of the numbers contracting the disease.
ii. However, even in this gloomy environment, economic data make it clear that the economy is embarking upon a recovery. It is a long climb back for real output, employment and corporate profits and the economy will be feeling the after effects of the pandemic recession and the monetary and fiscal measures taken to mitigate it for years to come. Nevertheless, the pace of the recovery across the many dimensions of the economic and financial landscape will have a significant impact on investment returns in the years ahead. This being the case, this seems like a good time to take a look at the recovery across dimensions of economic activity and government policy.
iii. Markets are supposed to be priced based on expectations and, even in the midst of this extraordinary pandemic with the added uncertainty of the upcoming election, it is completely reasonable to expect a recovery from here. However, it is a long climb back for the economy, for employment and for profits. In addition, an eventual tightening of both monetary and fiscal policy should represent headwinds for both stocks and bonds. This being the case, investors would do well to temper any expectations of strong long-term gains on U.S. assets and also be willing to diversify internationally into markets where the climb up Recovery Mountain looks a little less steep.
b. Weekly Market Recap
The U.S. dollar (USD) has been on a wild ride since the beginning of the year. As COVID-19 spread globally and markets came under pressure, the dollar began appreciating sharply, and was up 6.7% year-to-date at its peak on March 20. This was primarily driven by an increase in investor demand for U.S. dollars given the currency’s historical “safe haven” status. Since then, however, the dollar has fallen -9.2%, driven by a confluence of factors including high valuations, falling nominal and real U.S. interest rates, a substantial trade deficit and surging fiscal deficit, a unified fiscal package out of Europe, and slowing COVID-19 case growth outside of the U.S. which has led to better international economic data. However, the question for investors is whether this weakness will continue. In our view, the dollar should depreciate over the long run, as the Federal Reserve looks set to keep rates near zero and both the trade and fiscal deficits are likely to remain wide. As a result, investors may want to consider adding international equities to their portfolios, particularly emerging markets, as dollar weakness tends to coincide with rising commodity prices, a pick up in global growth and emerging market outperformance relative to developed market peers.
c. Weekly Strategy Report
i. Getting the trifecta of growth, virus, and policy dynamics right is still, by far, the key to generating asset allocation alpha in this environment. As we evaluate a fast-moving virus dynamic, robust but decelerating growth and a step-down in U.S. fiscal policy, we believe the Federal Reserve (Fed) will remain a stalwart support to financial conditions and, in turn, our decision to lean into risk assets in portfolios.
ii. A lot will be at stake when the Fed begins a grand experiment with average inflation targeting. If the policy works, market pricing of inflation will rise, yield curves will steepen and, in due course, inflation and monetary policy settings will normalize. If it doesn’t work, inflation stays soft, curves flatten and the U.S. moves a step closer to Japan’s and Europe’s liquidity-trap dynamics.
iii. Monetary policy also leaves a strong imprint on the composition of our risk-on portfolio tilts, through backstopping credit markets and by compressing nominal yields to the point where equity valuations look relatively compelling. But policy has also made bonds a less effective hedge for risk assets.
Opportunities:
Community Café is Wednesday, August 12th at 8:00am for 30 minutes. Topic will be on: “Managing Fear & Greed with Your Investments”
- Will live stream on Facebook Live anyone who is friends with me on Facebook or Click Here to Follow The Community Café Facebook Page
- Email invitations were sent to join on the Zoom.us platform
- Speakers, Mark Roberts and Christian Toman of Frist Option Bank
- Invitations will go out via email with a link to join on zoom.com, plus those who are friends with me on Facebook
Estate Planning webinar on Tuesday, August 18th at 6:00pm or August 19th at 12:00pm noon
- 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? Register at the following link: Click the date for the link to join… Click Here For August 18th at 6:00pm or August 19th at 12:00noon. Or email Stacy at [email protected]
Social Security and Tax Strategy Webinar on Tuesday August 11th at 6:00pm and Wednesday August 12th at 12:00pm noon
Click here for August 11th 6:00pm or for August 12th at 12:00pm noon. Or email Stacy at [email protected]
If you would like a copy of my 30 minute recording of Community Café on the topic of “Tax saving Strategies”, please contact Stacy and we can email it to you.
Are you over age 72? RMDs, can be re-invested back into your IRAs.
If you previously took your annual RMD, and with the stimulus package CARES allowing RMDs in 2020 only to be skipped, you can put that money back into your IRA. Call us for more details.
Referral rewards program:
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 with anyone you know, as the best way to battle stock market anxiety is education.
Thank you for your time in reading these updates.
Stay safe and stay healthy,
Mark Roberts
