The year in headlines started with the death of an Iranian General. Concerns that this would start World War III fizzled and the markets shrugged their shoulders as even oil markets barely flinched. Stories started circulating in January about a virus in China. The United States was consumed with impeachment, confusion over the Iowa caucus, and the idea that Bernie Sanders was the frontrunner to win the Democratic primary. The coronavirus shut down China, setting off ripples throughout the global supply chain. On top of that, Russia and Saudi Arabia bottomed out oil prices over a disagreement in production. Volatility roiled the US stock markets, setting off circuit breakers on multiple days. COVID-19 spread across Europe and finally the United States. Individual states have responded with quarantines and the nation has mobilized to support the healthcare system. The press got their World War III – the enemy is a virus.
The S&P 500 peaked on February 19th. By March 23rd, the S&P 500 was down 33.8% from the high. This was the fastest bear market ever. It then rallied 17.6% with the Dow Jones Industrial Average rallying over 20%. In total, the S&P 500 is down 19.6% this quarter. The market has made up some ground since the bottom, but high levels of volatility indicate that the bear may not be done. The average absolute daily market move in March was 5%. The historical average is about 0.70%.
Tax Day has been extended! On March 21, 2020, the IRS announced that the federal income tax filing due date for 2019 returns is automatically extended from April 15, 2020 to July 15, 2020. This extension applies to all taxpayers, including individuals, trusts, estates, etc. This new filing date also extends the deadline for paying any 2019 federal tax due, along with penalties and interest. Further payments on 2019 taxes are not due until July 15, 2020 and interest and penalties will not begin to accrue until July 16, 2020. Unlike an earlier iteration of the extension, there is no limit on the amount of the payment owed. As this is an automatic extension, no form or action is needed by taxpayers to qualify for this extension.
What about 2020 estimated tax payments? The due date for 1st quarter 2020 estimated taxes has also been extended to July 15,2020. However, 2nd Quarter 2020 estimated taxes have not been extended, and they remain due June 15, 2020. The due dates for contributions to an IRA or HSA have been extended to July 15, 2020. While there is some expectation that most states will follow suit and extend their filing deadlines to July 15 as well, most have not yet done so, including Ohio. We should have more clarity soon in the coming days as additional guidance is released.
I guess I can say I’ve been around the business for a long while now. As when in moments like our world is currently going through, I unfortunately am reminded so vividly of feeling this way before. The uncertainty, the doubt, that feeling of “I can’t believe this is actually happening”…and most impactfully, the fear. I sense definite parallels to the period right after 9/11. Our country and the world were dealing with real life and death issues, just like now. We seemed to wake up to new fears every day, concerned about another attack, about anthrax and other weaponized drugs, about how New York would ever recover. Travel came to a halt, people were afraid to leave their homes, our government’s response was questioned, and it seemed like life as we knew it would never be the same. The stock market was down 7% the day after 9/11 and down by about 15% by the end of the week…after already being in a bear market after the dot-com bubble burst.
I see parallels to 2008 as well, when the financial crisis hit. It felt like every day I’d wake up and turn on CNBC to news of another company on the brink of collapsing, additional layoffs, the government trying to figure out how to stem the tide and another major selloff in the stock market that eventually cut market valuations by more than 50%. In both cases, we were dealing with something we’d never seen before. With things we never comprehended ever even happening. It truly was surreal, just as things feel so surreal today.
February came to a turbulent end with the S&P 500 down 3% or more during three trading sessions last week. The S&P 500 was down 8.23% for the month and 8.27% for the year. The 10-year Treasury yield is under 1.13% as a global flight to safety pushed yields down from 1.92% at the beginning of the year.
Fear-driven selling due to coronavirus is the lead story all over the media. Both supply and demand were shocked as China aggressively quarantined its population. Expect fewer reports on things returning to normal. For example, after shuttering half of its 4,000 stores in China, Starbucks says 85% are now open. Active coronavirus infections have been dropping by about 1,500 patients each day for the last two weeks. Expect good news to be met with skepticism.
Stocks were off by about 3% yesterday on fears that cases of coronavirus are accelerating outside of China. Should you worry? For the “general American public“, the answer is no, according to the CDC. Does that mean that only fools would be concerned by this? No. Identifying and dealing with threats is how humans have survived as a species. It’s normal to watch the news, worry, then want to talk to someone about it.
Market pullbacks like this are not uncommon. We had a 6% selloff in August of 2019 (tariffs) and a 6% drop at the end of January of this year (also coronavirus fears). The last real correction was in the 4th quarter of 2018 when the market was down nearly 20%. On average, there’s a correction of 14% each year so maybe we don’t even call this normal until we’re down another 10%?
The perceived importance of market drawdowns, however, is magnified because of how we collect and digest data. We as humans are all relatively new to social media. Whether it’s Twitter, Facebook, or Instagram, we have the opinions of a crowd at our fingertips. Your feed may be telling you to panic over coronavirus, but other people’s feeds are full of spring training games, Saturday’s big fight, or Nevada caucus results. If your feed is talking about just one thing, it’s easy to feel like EVERYONE thinks the same thing and that thing is very important. Instead, it may be prudent to keep in mind Warren Buffett’s saying that pundits reveal “far more about themselves than they reveal about the future”. Continue Reading →
Would you let a groundhog invest on your behalf? That sounds silly, but at least Punxsutawney Phil has a track record. When he saw his shadow, stocks rose 72% of the time. Phil didn’t see his shadow this year. Does that mean sell? No. Stocks rise 73% of the time whether the groundhog sees his shadow or not.
Punxsutawney Phil is very clear about his strategy, just buy stocks. He doesn’t use language like “cautiously optimistic” to hedge his bets. The varmint is all in. Turning the investment desk over to a rodent doesn’t pass the smell test (in more than one way), however.
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act was signed into law. This law affects most retirement savers, as well as employers who offer retirement plans to their employees. The law’s provisions are designed to promote a more secure retirement for individuals, primarily by allowing more flexibility and accessibility relating to retirement accounts. How does this law affect you? Below are some of the key highlights and other provisions:
To provide a little additional time for retirees to grow their retirement accounts, the required minimum distribution starting age has been increased from age 70½ to age 72 for individuals who were born on or after July 1, 1949. Under the old law, the first RMD was due on April 1 of the year after the individual turned 70½. Under the new law, the first RMD is due on April 1 of the year after the individual turns 72. Subsequent RMDs remain due by December 31st.
Some feared the near-bear drawdown of late 2018 was the beginning of the end of the bull market. Indeed, many market commentaries mention being “late in the market cycle”. Age will not signal the end of this bull, however. The S&P 500 gained 31.5% even as the largest drawdown for the year was 7%, about half of the annual historic average. Asset classes rose across the board with the Barclays Aggregate Bond Index up 8.7% and international stocks up 22%. A fairly conservative diversified portfolio might have returned “only” 15% last year.
We are still a long way from euphoria, though, as a December poll of likely US voters revealed that only 40% of them thought the stock market had increased in value in 2019. 42% thought the market was flat while 18% thought it had gone down. Rather than euphoria, this market is responding to chatter around politics, IPOs (ARAMCO and WeWork), and yield curve inversions with a shrug of the shoulders.
Thanksgiving is a time for turkey, pumpkin spice everything, and – most importantly – reflection on what we are thankful for. This is also the time of year for the cliché awkward family argument, whether it’s about politics, bitcoin, or jockeying for who still has to sit at the kids’ table. The most controversial topic at my house revolved around cranberry sauce, but in the world of financial advice, the active versus passive investment debate is still in full swing.
We at Fairway see the debate as settled: active management is hobbled by fees, performance generally lags benchmarks, and persistence of performance is minimal.
Fairway is looking to add to our wealth management staff. We’re seeking client-focused, career-oriented professionals who want to learn the wealth management business in support of our team of Wealth Managers. Strong people skills, a passion for helping people, and an accounting and/or finance education and background are key traits. See the attached job description for more information.