Happy Monday and Happy August to you all.
August 3rd… Where has this year gone? Before we know it, the election will be here, and next the holidays.
Kids in our area are starting back to school after Labor Day (which is way late), and being offered to stay at home with online schooling or to go to school with social distancing. My girls are staying home at least for this first semester, then re-evaluate where the coronavirus and the vaccine to determine what to do for the second semester. Our son starts college and also electing to do all online classes. Then, we also found out that the breaks are smaller than normal also, like the holidays, and spring break. Followed with school getting out a bit later than normal also. This is going to be a real challenge for those families with young kids and what to do with them if both parents work.
Last week, I got technical explaining how FAANGM stocks are altering the markets and how people view them. Today will be less technical ☺
I was hoping to report by today, that Federal Chairman Jerome Powell speech 2 weeks ago, would have caused a bit of a dip in the market so we can buy in a small portion in the portfolio. The market only dropped about 1%. I was also hoping to report by today, the announcement and details of the next stimulus. That has not happened. So more waiting.
Last week was also a relatively flat week.
Performance DJIA:
Mon 7/27 +0.43%
Tues 7/28 -0.77%
Wed 7/29 +0.61%
Thurs 7/30 -0.85%
Fri 7/31 +0.44%
Last week -0.16%
Since 2/19 market high -9.95%
Bond model you are in:
Last week +0.15%
Comparison:
Bond model last 30 days +0.93% (this is a fantastic return for 100% bonds in 30 days)
Tid Bits:
1. According to USA Today, the unprecedented collapse that the U.S. economy suffered in the second quarter as the COVID-19 pandemic gripped the nation will be laid bare Thursday, with a report projected to show a record 35% annualized drop in gross domestic product.
2. U.S. Economy Shrinks at Record 32.9% Pace in Second Quarter
a. by Reade Pickert, 7/30/20. The U.S. economy suffered its sharpest downturn since at least the 1940s in the second quarter, highlighting how the pandemic has ravaged businesses across the country and left millions of Americans out of work. Gross domestic product shrank 9.5% in the second quarter from the first, a drop that equals an annualized pace of 32.9%, the Commerce Department’s initial estimate showed on Thursday. That’s the steepest annualized decline in quarterly records dating back to 1947 and compares with analyst estimates for a 34.5% contraction. Personal spending, which makes up about two-thirds of GDP, slumped an annualized 34.6%, also the most on record. Andrew Hunter, senior U.S. economist at Capital Economics, said in a note. “Nevertheless, with the more recent resurgence in virus cases starting to weigh on the economy in July, a continued ‘V-shaped’ recovery is unlikely.” “We have seen some signs in recent weeks that the increase in virus cases, and the renewed measures to control it, are starting to weigh on economic activity,” Fed Chairman Jerome Powell said at a news conference Wednesday after the central bank’s two-day policy meeting. “On balance, it looks like the data are pointing to a slowing in the pace of the recovery,” though it was too soon to say how large — or sustained — this period would be, he said.
3 On Thursday, July 30, the Bureau of Economic Analysis announced “Real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the “advance” estimate. The decrease in real GDP reflected decreases in personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.”
4 Dan Fuss: Prepare for 1970s-Style Inflation
a. Dan Fuss, vice chairman of Loomis Sayles and one of the world’s best-known bond investors, will be the first to tell you he is confused about the markets. But count him in the camp that doubts the U.S. economy is headed for a V-shaped recovery. He is confident, however, that the long-term outlook includes a resurgence of 1970s-style inflation. Rising debt brought on by massive government spending raises a lot of big questions, and one of those is whether it will lead to inflation. Global debt as a share of GDP is at “almost incomprehensible levels, and this is long before COVID hit. And many people argue that the only way you can deal with that amount of debt is with inflation, other impacts could create deflationary pressures.
Facts:
Coronavirus
a) Global 18,271,912 cases 693,587 deaths
b) US 4,814,440 cases 158,375 deaths (+5.7%, +8,523 increase from last week) **3 weeks in a row, the death numbers and the percentages increasing**
c) KS 28,144 cases 359 deaths
d) MO 51,840 cases 1,313 deaths
Highlights from analysts and economics
1. From JP Morgan
a. Weekly Strategy Report
i. Economic data suggests a continued global growth rebound but preliminary readings for July activity point to a moderation in the recovery’s speed, particularly in the U.S. where second quarter GDP reports reminded investors of the depth of the recent downturn.
ii. As the U.S. struggles more than other developed economies to manage COVID-19 and support the recovery, the dollar’s resilience has been eroded. With a weaker USD, the MSCI ACWI index rose 4% in local terms in July vs. 5.3% for U.S. dollar-based investors.
iii. In equities, emerging markets outperformed, led by China, while the tech-heavy S&P 500 also did well. In fixed income, the U.S. yield curve moved lower and flattened while European sovereigns also rallied nicely, particularly in the periphery. Credit spread tightening remained resilient through equity market volatility.
b. Notes on the week ahead
i. It needs to be recognized that in economics, as in portfolios, recovery percentages need to be larger than decline percentages – it would take a 54% annualized bounce in real GDP to recover from a 35% annualized fall. However, more fundamentally, recession psychology will drag on investment spending, budget realities will reduce state and local government spending and the pandemic will slow reopening of businesses across the travel, entertainment, restaurant and retail sectors. Indeed, as cases have grown in recent weeks the recovery in hotel occupancy, airline travel and a wide swath of credit card spending appears to have stalled out.
ii. This slowdown in economic momentum is adding urgency to stimulus talks in Washington and Senate Republicans are expected to unveil their bill this week. This bill, like the House version passed back in May, represents more of an opening bid on further fiscal stimulus rather than a framework for a final deal. The sides are far apart both on the amount of further support and the details. However, it is likely that an agreement will be reached in early August as neither side can afford, in an election year, to be accused of abandoning negotiations in a time of such obvious economic stress.
iii. In prior decades, the federal government would have felt entirely unable to borrow a sum of this magnitude. However, the Federal Reserve has made is clear that it is willing to monetize the federal debt to whatever extent is necessary in this crisis. Over the past year, the Fed has increased its holdings of U.S. Treasury bonds by $2.2 trillion and its current $20 billion weekly pace of purchases would add a further $1 trillion to that stockpile over the next year. Even this may be exceeded in the months ahead, if Treasury borrowing is seen as potentially putting upward pressure on long-term interest rates.
iv. While this policy may have a veneer of intellectual respectability, it is a risky idea in a world where central banks have gradually been removing the implicit guarantees that backstop fiat money. If inflation does begin to accelerate, it is by no means clear that inflation expectations will be slow to follow. If consumers, businesses and workers suddenly begin to expect much higher inflation, they may collectively try to convert cash balances and financial assets into consumer goods, real estate, commodities and foreign assets. This, in turn, could lead to higher interest rates, higher taxes and a lower dollar. This is unlikely to occur this year but could become a more significant threat late next year or in 2022, particularly if Washington does not remove fiscal and monetary stimulus as the economy recovers.
2. From Nuveen
a. Weekly Insights
i. 1. Growing virus cases are likely to complicate economic reopening plans, but we don’t expect massive shutdowns. As the virus flares up in areas of the U.S. and elsewhere in the world, we think economic activity is likely to slow in some places. But we don’t expect widespread renewed shutdowns. For one, the health care system is better equipped to handle the virus than it was in the spring. Additionally, both policymakers and individuals are committed to reopening the economy, both for good and ill. We don’t expect any new shutdowns to spark a new equity bear market, but we do think they will slow the pace of the current economic recovery.
ii. 2. Consumer sentiment is falling. The University of Michigan’s Index of Consumer Sentiment fell from 78.1 in June to a worse-than-expected 73.2 in July. This suggests consumer spending is likely to slow, which is bad news for the economy (and for President Trump’s reelection chances) but good news for prospects for an additional fiscal stimulus package.
iii. 3. Earnings have been a bit less horrible than expected. With 15% of S&P 500 companies reporting second quarter results, earnings are on track to be down 43% year-over-year.2
iv. 4. The banking sector remains under pressure. Banks are continuing to raise their credit loss provisions, as the risk of bankruptcy among their borrowers is rising. We don’t see this changing until we have more clear evidence of infections being contained.
v. 5. Jobs growth should continue, but slowly and unevenly. We expect the unemployment rate to fall over the next 18 months, but also believe it will be higher than pre-crisis levels at the end of 2021.
vi. 6. U.S. political uncertainty is growing. It is looking increasingly likely that Joe Biden will win the presidency. The growing possibility of a Democratic Senate could result in market-unfriendly tax and regulatory changes.
vii. 7. We could be at the cusp of a change in global stock market leadership. Over the second half of 2020, we expect the U.S. dollar to fall and non-U.S. stocks to start outperforming on a relative basis.
Opportunities:
Community Café is Wednesday, August 5th at 8:00am for 30 minutes. Topic will be on: “Your Money in the year of Coronavirus, Politics, and Stimulus”
- 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
- Speakers, Mark Roberts, with special guest Tom Strandell of Affinity Asset Management
- 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:
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 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
