As of this writing, the markets have had a historic comeback this week up about 20% from the lows after the fastest bear market in history. The markets and all three of our discretionary portfolios bounced back nicely.
As we mentioned in previous emails and newsletters, when volatility strikes like it has, it can work both ways; and it tends to cluster like it has been, resulting in big up days as well as down days. This just reiterates our previous commentary that shows the danger of trying to either time this market or make large all in or all out changes. If you had sold during the downturn and now stocks are at or above where you sold, it makes every decision from now on even harder. You have to be right at least twice, as to when to get out and when to get back in. We expect both the number of confirmed cases of the virus to look worse in the near term and economic numbers to follow accordingly. What you have to do is avoid making assumptions with certainty at this point. We just had the worst unemployment numbers of all time – over 3 million people filed for unemployment and the market rallied over 5% on that news.
One of our research inputs Jeff Saut, of Saut Strategy, put out this note today:
“Many market participants — new and old alike — were likely taught a valuable lesson yesterday. After the worst jobless claims number in history (by far!), the stock market naturally responded by exploding higher to see the major US averages gain 5-6% on the news. Does it make sense? No. Do the markets have to make sense? No! As I frequently like to point out — the markets can do anything.
It’s a perfect example of why we should not try to make decisions based on headlines and news reports. Several people warned me about the unemployment number during Wednesday’s strong session, and my typical response was to remind them that the market is a forward-looking discounting mechanism. If you and I are aware of something like an upcoming economic report, I guarantee the market knows about it. It is much smarter than we are. Sometimes it does get caught leaning the wrong way when it’s not expecting a black swan event like the coronavirus pandemic, but for the most part the financial markets are very good at their job of discounting the future.”
We will continue to watch our research and make any appropriate moves to get our clients through this difficult time.
We wanted to highlight a few key points in the Coronavirus Stimulus bill that recently passed. To the best of our knowledge some of the key points that will impact our clients are:
1) Required Minimum Distributions (RMDs) are suspended for 2020.
2) IRA and 401(K) distributions up to $100,000 can avoid the 10% early withdrawal penalty for those below age 59 ½. The tax will still be owed but can paid over 3 years.
3) Direct payments from the Government – Individuals will get a one-time payment of up to $1,200 per person ($2,400 per couple) and $500 per child. It will start to phase out for individuals at $75,000 and $150,000 for those married filing jointly. Treasury Secretary Mnuchin said he hopes to have this in people’s pockets in about 3 weeks.
4) Temporary suspension of payments for Federal Student loans.
There are several more details in the bill regarding small business and airlines etc. We wanted to get out what we thought would be the most important points for our clients. Please contact us if you have any questions. These things may be subject to change and different interpretations in the coming weeks, so we will keep you updated as needed.
Please see the enclosed article for a more complete summary of the bill according to Jeffrey Levine and Michael Kitces.
The information contained herein was obtained from sources considered reliable. However, its accuracy or completeness cannot be guaranteed. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
La Ferla Group does not provide legal or tax advice. You must consult with your legal or tax advisor regarding your personal circumstances.
Contact La Ferla Group if you have any questions; if your financial situation, individual needs or investment objectives have changed; or if you would like to impose or change any investment restrictions on your account(s).
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Regis R. Dillon, CFA, CFP®
Chief Investment Officer