facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

July 2020 Newsletter: Navigating Choppy Waters



Before we get started, just a few housekeeping notes. Many of you have noticed we are in the process of implementing an electronic signature function for clients to update paperwork. We want to thank our administrative team (Melissa, Paulette, and Sarah) for the fine work and coordination to get this going. It is just one of many ideas we have initiated to improve the experience clients have working with us.

I recently attended a web-based session along with hundreds of investment professionals. Attendees shared their views on the current recovery and what financial advisors should be preparing clients for moving forward. Some of the participants were spending all their time focusing on factors that no human can control such as the near-term day to day direction of financial markets rather than factors they can control such as proper asset allocation and specific investment holdings. This reminded me of a documentary I watched several years ago on Maritime history. Centuries ago some civilizations focused on predicting storms to improve the success of their sea travel. Other civilizations focused on building better boats because they felt that it was not possible to predict the weather in a consistent manner. They also believed that storms were inevitable, and it was better to be prepared. They directed their efforts into constructing a boat that could safely navigate a storm until calmer seas prevailed. Like those shipbuilders from another era, we continue to focus on factors we can control for our clients. Building a better boat identifies with our approach of engineering and constructing a durable portfolio for clients: a customized portfolio aligned to each client’s financial plans that can handle the turbulent markets. There is no shortage of unknowns as we peer out into the second half of 2020 and into 2021. We continue to focus our efforts toward researching and identifying investments that produce a responsible and durable portfolio. February and March produced a raging storm in financial markets followed by a sunny recovery in the 2nd quarter. We remain focused and committed that your “financial boat” is sound and ready for whatever comes next.

The first half of 2020 will be in the history books and studied for generations. It was highlighted by unprecedented restraints placed on business and individuals around the globe. We also saw unprecedented government stimulus to keep the economy’s ember burning. We have been focused on reviewing portfolios to balance the prospects of a quicker-than-expected recovery with a slower-than-expected recovery. As we outline below, we don’t believe enough information is available and there is too much uncertainty for any investor to predict the short-term outcome with a responsible degree of confidence. Potential catalysts to the upside are further government stimulus, progress on a vaccine, and a continued better-than-expected restart of the economy. The risks continue to be centered around the second wave of the virus and how long this will impair employment and business revenues. Thus far, the government stimulus and hope for a vaccine have prevailed. This has driven most indexes to within 10% of where they were in January and for the Nasdaq to reach a new all-time high.

In addition, there are some rules some of you may be aware relating to IRA withdrawals and distributions for 2020 due to the pandemic. Those are outlined in the graphic below, and we welcome the chance to discuss them if you believe they apply to you.



The strong rebound in financial markets doesn’t necessarily match the headlines and that often has been the case historically. Companies will begin to report Q2 earnings in the next couple weeks. Optimists are hoping for a drop in Q2 earnings of less than 30%. Pessimists project earnings for SP500 companies to be down 40-50%. Fact Set research specifically predicts a 44% drop in Q2. The economic data suggests a recession in the US began in late January or early February despite the pandemic’s largest impact not beginning until mid-March. The IMF is now estimating an 8% drop in GDP for the US economy. If 8% is accurate, this would be the largest drop in GDP we have seen since 1946. On the bright side, we had very strong employment numbers for May and June that defied the odds and projections of economists. In addition, governments across the world continue to be very accommodative for businesses and individuals impacted by the pandemic. We are also seeing manufacturing better than expected and the travel industry beginning to rebound.

Those that follow the news and financial markets closely are already ware that there are extreme bullish and extreme bearish views on the markets. Rarely are the extreme views accurate. Historically, the truth frequently lies somewhere in between. Covid-19 cases in the US are on the rise, however mortality rates are not (and there are even two sides to that “argument”). Most health organizations now forecast the pandemic to last in some degree into 2022 , despite promising medicinal developments. In the coming weeks, we will begin to see the end of the current government stimulus such as Paycheck Protection Plan and unemployment insurance. A study out of University of Chicago suggests that 2/3s of unemployed workers were making a higher wage on unemployment than when working. Therefore, it could be August before we see any real impacts from the current unemployment situation.


The recovery has been brisk but there is valid data to suggest it is fragile. Areas of the economy such as technology, media, home building, and e-commerce have been much stronger than expected and have helped to offset weaker areas of the economy thus far. Corporations are now forced to deal with a new environment of capitalism to some extent. One must consider that corporate stock buybacks will likely be much lower in the future than in the past, which would reduce the demand for shares of certain stocks. In addition, the expense of higher compliance and safety standards brought on by the pandemic could also be a headwind for many stocks.

We will learn more in the coming weeks about additional government stimulus plans designed to keep small businesses afloat and to protect consumers income. This, along with positive medical data, could push markets higher immediately. We will continue monitoring data to aid us in ensuring we are balancing the prospect of a better than expected recovery with a slower than expected recovery. The recovery outlined by the Congressional Budgetary Office, The Federal Reserve, and the International Monetary Foundation is a slow rebound where unemployment remains elevated into 2022. In addition, 74% of CEO’s forecast reductions in hiring and capital spending. In the coming weeks, we will likely begin hearing more about any budget shortfalls in municipalities due to lower tax revenue from the economic shutdown. Lastly, we expect the influence of the November election predictions to have a larger impact on markets in the 3rd quarter. Thus far, the democrats and republicans have worked adequately to provide life support for many households and businesses. If the projections outlined above are accurate, we likely will need continued support from the government.


As always, we are honored to serve you and take the responsibility very seriously. We certainly have missed seeing our clients in person to the degree we have become accustomed. We are doing our best to keep in touch with each of you but please know we welcome a phone call or email from you any time. We take pride in being here for you during times such as these.

Check the background of this firm/advisor on FINRA’s BrokerCheck.