changepath_adviser_recruiting_page

Market Commentary | November 2021

Fri, 03 Dec 2021 19:00:13 GMT

November was a dizzying month for investors.

The highlight? Earnings. 82% of companies1 beat estimates this quarter, despite headwinds such as supply chain constraints and inflation.
The market’s biggest muse? Elon Musk’s twitter handle, with tweets such as (paraphrased) “should I sell 10% of my Tesla stock?”
The most exciting job? Fed watcher. We started tapering, saw a plethora of hot inflation data, and gleaned insight from Federal Reserve Chair Jerome Powell on the last day of the month.

November 2021 Market Returns

Markets

The month started off on a high note. Equity markets were hitting new records and we were contemplating Elon Musk’s tweets daily. The Dow Jones Industrial Average index hit 36000 intraday for the first time ever. We had the official start of tapering (more on that later…), earnings started coming in strong, and it felt like markets were firing on all cylinders.

But that was just week one. Going into the second week of November, we saw hot inflation prints, continued supply constraints, hacks, and scams (cue Robinhood data security incident 1 and SQUID cryptocurrency), and the market started to wobble from uncertainty. From then on returns were a mixed bag. Instead of the Dow Jones, S&P 500 and Nasdaq Composite indices all rising and falling together, the story became one of dispersion. Broadly, growth names in technology and consumer discretionary sectors outperformed value-oriented names in financials, energy, and industrials sectors. But there were also days when those trends reversed completely, keeping us on our toes.

Throughout the volatility, a lot of positive things happened. President Biden signed the $1 trillion infrastructure bill, Adele dropped a new album, and earnings continued to deliver despite supply constraints and inflation. In fact, by November 19, of the 95% of S&P 500 companies that had reported results, 82% of those companies reported a positive EPS surprise and 75% of those companies reported a positive revenue surprise. 2

Investors sat at the Thanksgiving table breathing a sigh of relief.

But alas, we all know how this story ends. From Black Friday on, markets whipsawed as COVID-19 variant Omicron was dubbed a “variant of concern”, Moderna’s chief executive said he was skeptical that existing vaccines would be as effective against the new variant, and Jerome Powell came out with some strong commentary on the very last trading day of the month (more on this below). Net, net, the Dow Jones Industrial Average index ended the month down 3.5%, the S&P 500 was down 0.7% and Nasdaq Composite eked out a positive 0.3%.

The Fed and the Economy

November was a great month to be a Fed watcher.

On November 3rd, the Fed announced its plans to officially start tapering, i.e., reduce the pace of asset purchases, by $15 billion per month beginning mid-November. This brings monthly purchases from $120 billion to $105 billion.

Of course, as dutiful Fed watchers, we must also watch what the Fed is watching: inflation and employment.

Inflation: Numbers continued to come in strong, hitting a three-decade high on supply shortages and high consumer demand in October. A BofA survey of fund managers 3 published mid-November showed that inflation was the top risk for investors.
Employment: Mid-month, the “quits rate” (the percentage of workers leaving their job vs. overall employment) hit a record high of 3% as 4.4 million workers quit their jobs in September. Near the end of the month, we saw the lowest jobless claims since 1969… for context, the year that “Sugar, Sugar” by the Archies was number one on Billboard’s Top Hot 100 songs.

Finally, on November 30, Federal Reserve Chairman Jerome Powell said that the risk of higher inflation has increased, and that elevated inflation pressures and rapid improvements in the labor market would justify “wrapping up the taper, perhaps a few months sooner.”

Let’s just say markets did not like this rhetoric.

Your Next Move

It is undeniable that there is uncertainty heading into the final month of the year, but don’t let the market’s inevitable ups and downs derail you from reaching your goals.

We continue to recommend a globally diversified approach depending on your goals, time horizon, and risk tolerance. History has proven the value of staying the course: a portfolio of 60% stocks and 40% bonds that remained invested has not suffered a negative return over any five-year rolling period in the last 70 years. 4

December is a great time to reevaluate your goals and consider finalizing a plan for gifting and tax considerations before the close of the calendar year. Please reach out to have a conversation today.

Our next commentary will be in the New Year, so we wish you a Happy Holiday!

[1] FactSet. November 19, 2021. https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_111921A.pdf

[2] https://blog.robinhood.com/news/2021/11/8/data-security-incident

[3] Bank of America’s November 2021 Global Fund Survey. November 16, 2012. https://www.pionline.com/money-management/fund-managers-more-optimistic-global-growth-bofa-survey

[4] JPMorgan Asset Management as of December 31, 2020. 7 Principles of Long-Term Investing. Returns are based on calendar year returns from 1950 to 2020. Stocks are represented by the S&P 500 Shiller Composite and Bonds are represented by Strategas/Ibbotson for periods from 1950 to 2010 and Bloomberg Barclays Aggregate thereafter.

This commentary is published by ChangePath, LLC and is provided free of charge for information and education purposes and should not be construed as a solicitation for the sale or an offer to buy any security. This information is not intended to be investment, legal or tax advice. The information presented was obtained from sources and data considered to be reliable, but its accuracy and completeness is not guaranteed. It should not be used as a primary basis for making investment decisions. Any stated or implied recommendations herein are of a general nature. Clients should consult with their investment advisor representative for advice concerning their particular situations and consider their own financial circumstances and goals carefully before investing. This commentary is designed to be general in nature and reflects our overall opinion. Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not indicators or guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Opinions, beliefs and/or thoughts are as of the date given and are subject to change without notice. Past performance is not indicative of future returns and there is always a risk of loss of principal with any investment strategy. Individuals cannot invest directly in an Index. Indices are unmanaged and do not reflect actual portfolios or trading and the stated returns do not include investment management fees, transaction fees, dividends and other earnings and the timing of investment decisions, thus, they are not necessarily indicative of the allocation or return that an actual managed account in the future will or would have achieved. Investment advisory services offered by duly registered individuals on behalf of ChangePath, LLC a Registered Investment Adviser.

Market Commentary | October 2021

Fri, 03 Dec 2021 18:51:28 GMT

October was another positive month for the markets after September’s pullback. So far in 2021, the S&P 500 had nine positive performing months, September being the only hold out. The index ended up 6.9%, even though the first week of the month started a bit volatile. However, 2021 is looking robust, even if November and December aren’t large contributors, as the YTD performance through October is 23.9%. 1

The Dow Jones Industrial Average (DJIA) was also up 5.8% for the month and 18.7% for the year. The NASDAQ Composite was up 7.6% for the month and 20% for the year. Performance of small cap stocks continued to trail large cap stocks and remain positive. The small cap index was up 4.2% for the month and 17.1% for the year after a strong start.

Similar to U.S. Equities, International Equities did well during October with performance over 5%. 2 Emerging Market Equities lagged the pack with a measly performance of just below 1%.

This trend of U.S. Equities dominating International is a decades-old story and appears to continue the trend into the near future. 3

THE VIRUS

It’s been just under two years since the world was introduced to COVID-19 and it remains an important market driver. While the Delta variant was a big cause for concern during summer, reopening businesses are on the upswing. The large rollout of vaccines both domestically and globally have helped the upswing. Below is a graph of the United States’ progress toward immunity. 4

On Novembe r 2, the Center for Disease Control announced Pfizer’s children’s vaccine was approved. 5 With additional vaccines for children age 5-12, immunity population will soon increase. As vaccines roll out, it’s positive news for the markets.

THE ECONOMY

Real GDP in the United States increased 2%, and an annual rate in the third quarter of 2021 according to the advance estimate released by the Bureau of Economic Analysis. These figures are down from the second quarter increase of 6.7%. 6

According to the Bureau of Economic Analysis, the GDP increase was driven by private inventory investment, personal consumption expenditures (PCE), state and local government spending and nonresidential fixed investments. These increases were offset partially by decreases in residential fixed investment, federal government spending and exports. Additionally, imports, a subtraction from the GDP calculation increased.

Looking at the positive contributors for GDP, the increase in private inventory investment was led by the non-durable goods industry, reflecting increases in wholesale trade and in retail trade, including motor vehicles and parts dealers. The increase in Personal Consumption Expenditure (PCE) was mostly due to an increase in services, which were somewhat offset by a decrease in goods. Contributions in services were generally widespread with the largest contributions coming from “other” services (mainly international travel), transportation services, and health care. Increased spending by state and local governments was led by employee compensation, most notably in education. Intellectual property products (such as software) led the increase in nonresidential fixed, which was only partly offset by a drop in structures and equipment.

A decrease in residential fixed-investments, decreases in improvements and in new single-family structures negatively impacted the GDC. Non-defense spending on intermediate goods and services declined and thus, reflected the federal government spending. The decrease in exports also reflected a slight increase in services, but not enough to offset goods. The increase in imports was led by travel and transport services. Also during the third quarter, the GDP decelerated based on the slowdown in PCE.

INFLATION

Inflation has been a big talking point for many financial pundits in recent months. Inflation is nearly at its highest level in 30 years. 7

Several fa ctors are driving inflation upward, including short-term factors like supply-chain constraints and record consumer-saving behavior. Additionally, some intermediate-term factors like dramatic price increases in housing and rent, rising wages, and rising energy costs are notable. These short to intermediate term factors may be dampened in the future by longer term factors such as technology increases, globalization and an aging demographic.

In the interim, inflation is looking to impact this year’s Thanksgiving dinner. At the center of many holiday meals is turkey! The cost is expected to exceed the 2015 benchmark set by the Department of Agriculture which was $1.36 per pound. The 2021 cost will exceed that benchmark by at least $.25 per pound. 8

Increasing inflation is going to create a balancing act for the Federal Reserve. On one hand the Fed still feels the U.S. economy needs assistance, as it has yet to recover roughly five million lost jobs during the pandemic. On the other hand, inflation is increasing steadily as Americans continuing to spend despite widespread shortages. The Fed will continue to struggle with this balancing act for the near term. During their November 3 meeting, the Fed left interest near zero as part of a long-term strategy to fuel employment. 9

In addition to keeping rates low, the Fed announced a plan to start tapering the bond purchase program. The program was designed so the Fed could purchase $120 billion worth of bonds each month beginning mid-2022. This policy should combat inflation, because the bond market dictates the cost of borrowing, especially for home and automobile loans. With the Fed bond purchases, rates can remain low for consumers.

Some investors have shifted portfolios into equities to combat inflation and potentially insulate portfolios against future missteps by the Fed. Other investors have begun to explore fixed-income alternatives including high-yield and emerging markets bonds.

CONCLUSION

The equity markets and inflation are on fire right now and there are no guarantees that either will stay the course. Looking into 2022, the term structure of the Volatility Index is in contango, meaning the future price of volatility is higher than the spot price. 10

According to this graph, the futures market volatility is set to rise during the early months of 2022. If market volatility has not been a part of conversations surrounding investing and portfolios, it’s a good time to start a dialogue.

The current structure of the VIX future leads the outlook to be bullish, albeit cautious. There is potential for growth, but now is the time to be selective in the portfolio allocation. Moving more heavily into U.S. Large Cap, Government Bond and Growth Stocks can help insulate against volatility. Also, reducing exposure to Sector bets and Emerging Markets Stocks can possibly help reduce turbulence in portfolios.

The market is volatile, but history has shown disciplined investment approaches can be superior. The market could continue to fall until the close of year, but it might not. In the end, investing is about time in the market, not about timing the market. We continue to recommend a globally diversified approach based on an individual’s risk tolerance. If you’d like to revisit your risk tolerance or talk about how the recent pull back in the market has made you feel, please don’t hesitate to reach out and schedule a conversation.

1 https://www.nasdaq.com/articles/october-2021-review-and-outlook-2021-11-01

2 https://www.msci.com/documents/10199/c0db0a48-01f2-4ba9-ad01-226fd5678111

3 https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/daily/mi-daily-gtm-us.pdf

4 https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/daily/mi-daily-gtm-us.pdf

5 https://apnews.com/article/covid-vaccine-kids-five-to-eleven-science-health-032f7ed4fa60a3c0e08ba418446cfe2b

6 https://www.bea.gov/sites/default/files/2021-10/gdp3q21_adv.pdf

7 https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/daily/mi-daily-gtm-us.pdf

8 https://www.nytimes.com/2021/10/25/dining/thanksgiving-inflation-supply-chain-food-costs.html

9 https://www.npr.org/2021/11/03/1051478945/federal-reserve-inflation-jobs-employment

10 https://www.cboe.com/tradable_products/vix/term_structure/

Market Commentary | September 2021

Thu, 07 Oct 2021 19:20:31 GMT

As discussed in last month’s commentary, we felt November was going to be one of the more pivotal months that this country has seen in quite some time. Well, November lived up to its billing. As the page turned to the final month of the year, November experienced one of the most divisive U.S. Presidential Elections, the announcement of multiple vaccines’ effectiveness, and new all-time highs in the equity markets. December is sure to be intense as well while President Trump continues to contest the election, and as many states are determining how to handle the rise in cases of COVID-19 in tandem with the potential distribution of a vaccine. December will close the book on what has been one of the most interesting years in many of our lifetimes. We will keep this month’s commentary brief as we look forward to recapping the year in our annual commentary next month.

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

The Dow Jones Industrial Average (DJIA) is now up 3.86% on the year after finishing the month of November up 11.84%. The technology heavy NASDAQ continues to perform well in 2020 as it is now up 35.96% on the year after finishing the month up 11.80%. Small cap stocks led the monthly performance numbers as the Russell 2000 is now up on the year by 9.07% after a tremendous month of November saw it increase by 18.29%. ¹ That is the strongest ever monthly performance for the index. ² Monday, November 30 ^th , saw a dip in the markets to close out the month as monthly rebalancing likely trimmed the equity exposure in portfolios and investors were eager to lock in the gains experienced in November.

IMPACT OF THE ELECTION AND THE VIRUS

A large part of the monthly gains can likely be attributed to two factors. The U.S. Presidential Election has led to political certainty and there was positive news surrounding a COVID-19 vaccine. Investors are in favor of the political certainty as President Elect Joe Biden was able to defeat President Donald Trump in the November 3 ^rd election. President Trump continues to contest the election, but he has yet to have any significant wins in court. President Elect Biden named Janet Yellen as his pick for U.S. Treasury Secretary. It is not expected to face much resistance in the Senate; however, she will need 51 votes to be confirmed. If Republicans maintain their majority of 52 seats after the Georgia runoff, Democrats will need to swing 3 senators to confirm her. If she is confirmed, she will be the first female to hold the role. She will be a welcome sight for Progressives as she served as the Chair of the Federal Reserve during the former President Obama’s second term. She was later replaced by Jerome Powell as Chair after Trump’s 2016 campaign targeted her for keeping interest rates too low. Current Secretary Mnuchin said that he will work with his successor “if things get certified,” which should further put investors’ minds at ease. ³

As the election results became clearer, so too, did news regarding vaccine trials. Pfizer, BioNTech, Moderna, and AstraZeneca all announced positive news regarding late stage trials of a vaccine. ⁴ From the perspective of many investors, this positive news was able to outweigh the increased number of virus cases, thus causing markets to rally throughout the month. The image to the right shows the daily number of virus cases throughout the year.

The United Kingdom gave emergency authorization on Wednesday, December 2 ^nd , to Pfizer’s coronavirus vaccine. This makes them the first Western country to approve a vaccine for distribution. With the vaccine being codeveloped by an American company, this authorization puts more pressure on U.S. regulators to move faster. ⁶ Federal government officials are promising that a vaccine will come soon, and some have even said before Christmas. ⁷ However, only a limited number of vaccines will be available for immediate distribution following any sort of approval. As a result, a plan must be put in place to best curb the spread of the virus and to protect those most at risk. In a recent meeting, the Centers for Disease Control and Prevention (CDC) voted on which groups of people will be the first to receive the vaccine. In a 13-to-1 vote, it was decided that health care workers and residents of nursing homes and other residential care facilities will be first in line. ⁸ The rest of the country may have to wait until late spring or potentially even until the summer of 2021. ⁷ While we still may be months away from a widely distributable vaccine, the recent news on effectiveness of the vaccines and the news from Britain shows us that there is a light at the end of the tunnel.

CONCLUSION

With all of the news surrounding the election, the virus, and the markets, it can be difficult, and certainly stressful contemplating your investments. The good news is that you shouldn’t have to make sense of it all. Your financial plans should be built based on your own risk tolerance and your own financial objectives. The ebbs and flows of the markets will come and go with each new headline and each passing day, but your portfolios should be built to withstand the volatility. We will inevitably experience more negative news surrounding the virus. There are likely to be more lockdowns in certain parts of the country and visiting family over Christmas could become more controversial than it was over the Thanksgiving break. There will be positive news too. Recent unemployment applications fell last week after a recent jump signaling that layoffs are easing, even though they remain high as the labor market continues to recover. ¹⁰ More positive developments on the vaccine front are likely as well. The resulting short term market fluctuations may be tough to look at as they scroll across the bottom of your television, but it is important to remember that your money exposed to this risk is meant for longer term goals. Remember to maintain your disciplined investment approach and take the emotion out of investing. Understanding your portfolio is about understanding expectations. It’s about having a sense of how your portfolio is designed and how it should behave over meaningful periods of time. Having a sense of how the investments should react to certain movements in the market. Having a dynamic plan in place should put your mind at ease when volatility is high. Please don’t hesitate to reach out if you’d like to revisit your risk tolerance and asset allocation. It is important that you feel comfortable about your current portfolio as December is likely to continue with the volatility seen thus far in 2020.

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations for the respective strategies are shown gross of fees. If fees were included returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Also, since the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.

This material has been prepared for information and educational purposes and should not be construed as a solicitation for the purchase or sell of any investment. The content is developed from sources believed to be reliable. This information is not intended to be investment, legal or tax advice. Investing involves risk, including the loss of principal. No investment strategy can guarantee a profit or protect against loss in a period of declining values. Investment advisory services offered by duly registered individuals on behalf of ChangePath, LLC a Registered Investment Adviser.

Source (1)

Source (5)

Source (9)

THE MARKET

September ended the streak of seven positive months in a row for the S&P 500 as it was the first negative month for the index since January of this year. The index ended the month down 4.76%, but it is still up nearly 15% on the year. That is the worst monthly decline for the index since March of 2020 when it fell 12.51%. ¹

Source (1)

The Dow Jones Industrial Average (DJIA) was down 4.29% for the month and is now up 10.58% on the year, while the NASDAQ Composite was down over 5% for the month and is now up just over 12% on the year. Small cap stocks continued to fall after they had a strong start to the year. The small cap index was down over 3% for the month, but it is still up 11.62% on the year after its strong start. International stocks were not immune to the pullback as the MSCI EAFE fell 3.19% during the month and is now up just over 6% for the year. Emerging markets are now in negative territory for the year after falling over 4% in September. The U.S. Aggregate bond index had another negative month and is now down 1.55% on the year. ¹

THE VIRUS

On Wednesday, September 22 ^nd , the U.S. Food and Drug Administration authorized a booster shot from Pfizer and BioNTech for the Covid-19 vaccine for those ages 65 and older along with others at high risk. ² President Joe Biden received his on live television on Monday, September 27 ^th , hoping to assure Americans that the vaccine is safe and urging them to get it when it is available to them. ³ Moderna and Johnson & Johnson booster shots are still being considered by the FDA, while Merck has developed a Covid-19 pill to treat those infected with the virus. ⁴ While not yet approved, the pill is designed to stop the virus from replicating within the body and hopefully lower the chances of those needing hospitalization. Currently 65% of Americans have received at least one dose of the vaccine, and 56% of are fully vaccinated. ⁵ These are positive signs in the fight against the virus, but the virus is still a very real threat as Covid-19 cases continue to spread, albeit at a slower pace. The virus will continue to create headlines; however, many experts believe that the markets have priced in the virus and see it as transient relative to other matters at hand that can affect them.

THE ECONOMY

Real GDP in the United States increased at an annual rate of 6.7% in the second quarter of 2021 after the third estimate was released in late September. This is a slight upward revision from the previous 6.6% estimate. Output is continuing to accelerate as this is an increase from the 6.3% number in the first quarter of this year. A large attributing factor to the increase in real GDP was the increase in consumer spending which accounts for roughly 70% of economic activity. Consumer spending grew at an annual rate of 12%, the fastest expansion since the economy began to reopen in the third quarter of 2020. ⁶

Source (7)

CAPITAL HILL AND THE FED

On Thursday, September 30 ^th , President Biden signed legislation to avert a partial government shutdown with only a few hours to spare as the budget year ended at midnight that evening. ⁸ The legislation extends the current budget plan into December of this year. Had the shutdown occurred, many federal employees would have stopped getting paid and many others would have stopped working. Numerous national attractions and parks would have also been closed, but the essential aspects of government would continue as the Biden Administration believed a shutdown would have very little effect on aspects of public health. The last time a shutdown occurred was in late 2018 through early 2019.

Avoiding the shutdown was step one. The second step is to raise the national debt ceiling. This is an artificially imposed borrowing limit. If the ceiling is not raised, the U.S. could default on its national debt. Many experts predict that the country would plunge into an immediate recession as millions of jobs would be lost and interest rates would increase rapidly. For investors, the stock market would also drop quickly. Mark Zandi, chief economist at Moody’s Analytics, told CNN: “It would be financial Armageddon. It’s complete craziness to even contemplate the idea of not paying our debt on time.” Democrats voted with Republicans three times during Trump’s presidency, and most rational people believe that the ceiling will get raised one way or another. The deadline for it to be raised is October 18 ^th . ⁹

The third and final step is to pass the $1 trillion infrastructure bill along with the $3.5 trillion social and environmental bill. The infrastructure bill will go towards investing in roads, railways, bridges, ports, airports, broadband internet and more. The bill has passed through the Senate already and it was scheduled to be voted on in late September by the House, but that has been delayed into October. With some Republicans in the House backing away from the bill and progressive Democrats unsure how they will vote, it is possible the bill was not going to make it through the House at this time, hence the delay. The progressive Democrats wanted to see both the $1 trillion and the $3.5 trillion bill on the floor at the same time. They are afraid that once they pass the $1 trillion infrastructure bill, many centrist Democrats will then go cold on the larger $3.5 trillion bill. As you can see, there is quite the dilemma in Congress and House Speaker Nancy Pelosi will try to navigate representatives in order to get versions of both bills passed by the end of October. The $3.5 trillion social and environmental bill would extend the child tax credit, federally fund family and medical leave systems, along with moving the country towards renewable energy to fight climate change. ⁹ There is a lot to monitor in Washington as we head towards 2022 with the results surely to affect us all one way or another.

Lastly, the Federal Reserve Board held its most recent FOMC meeting on September 21 ^st and 22 ^nd . The Fed announced that it “may soon be warranted” to begin tapering bond purchases. This was somewhat expected given previous comments; however, we are still waiting on specifics. It’s possible that they announce the taper in November, but the fact that specifics weren’t given in September shows that the Fed is still somewhat dovish and focused on economic growth rather than controlling inflation. As previously discussed, the second Fed lever is rate hikes. Fed Chair Jerome Powell stated that the tapering of bond purchases will not be a direct signal to rate hikes, but there were interesting developments based on Fed member expectations after September’s meeting. In the June meeting, only seven of the eighteen Fed members expected a rate hike in 2022, but that number increased to nine after September’s meeting. ¹⁰ We will continue to monitor what is happening in Washington throughout October followed by the Fed’s meeting in November.

CONCLUSION

The markets took their largest hit of the year in September. It was a steady drop though, as the largest one-day decline for the S&P 500 during the month was only 2.04% on September 28th. September has traditionally been the worst month for the index averaging a 0.99% decline, and given the last 18 months, a slight pullback was to be expected at some point. It’s very possible that there is more to come as the country is still dealing with the virus and the many issues in Washington. ¹¹ However, we want to reiterate much of what we said last year during the start of the pandemic, and that is not to panic. The following images are a few pieces of evidence as to why it is important to remain calm during these pull backs and bouts of volatility. The first image shows intra-year market declines with the red dots and the year ending market performance displayed by the gray bars. As you can see, on average, the market experienced a 14.3% price drop per year, and still finished the year positive in 31 out of the last 41 years. In order to get to that average drop of 14.3%, the S&P 500 normally experiences a 10% drawdown once per year and a 5% drawdown once per quarter. Statistics like these can help to set expectations for investors so that they aren’t terribly surprised to see another pull back or more volatility in the 4th quarter of this year.

Source (12)

The next image is evidence as to why we always recommend staying disciplined to your long-term investment objective based on your risk tolerance. From 1995 through August of 2021, you can see the annualized return of the S&P 500 on the far left equal to 9.0%. Had you stayed invested during the entire period, your $500,000 investment grew to over $4.2 million, but if you missed only the 5 best days during that time period, your investment grew to just $2.7 million. That is a $1.5 million dollar difference accomplished by simply trying to time the market. It is also worth noting that a study done by J.P. Morgan showed that six of the ten best days in the market from 1998 through 2017 occurred within two weeks of the 10 worst days. If investors worry and try to pull out at the sign of trouble, there is a decent chance that they may miss those good days to follow resulting in significantly lower returns.

Source (13)

The last image we will touch on shows the performance of the average investor during a the 20-year time frame from 2001 through 2020. Many investors think that they can actually time the market and claim to have done so simply because they got out before the bottom. However, most of them will not reinvest in time. Timing the market is very difficult and more often than not, the average investor will fail. During this period, the S&P 500 returned 7.5% per year. The two blue columns represent the disciplined investor with a balanced portfolio of 60% equities and 40% fixed income or vice versa. The disciplined, balanced investor achieved an annualized return of right around 6%, while the average investor that tried to time the market achieved an annualized return of less than 3% represented by the orange column.

Source (14)

The market is volatile, but history has shown you are better off if you stay disciplined in your investment approach. The market could continue to fall through the end of the year, or it might not. At the end of the day, investing is about time in the market, not timing the market. We continue to recommend a globally diversified approach based on your risk tolerance. If you’d like to revisit your risk tolerance or talk about how the recent pull back in the market has made you feel, please don’t hesitate to reach out and schedule a conversation.

1 – https://www.investing.com/indices/major-indices

2 – https://www.theguardian.com/world/2021/sep/22/fda-approves-covid-booster-pfizer

3 – https://www.npr.org/2021/09/27/1040898432/biden-covid-booster-vaccine

4 – https://apnews.com/article/merck-says-experimental-covid-pill-cuts-worst-effects-a9a2245fdcee324f6bbd776a0fffcc60

5 – https://covid.cdc.gov/covid-data-tracker/#vaccinations_vacc-total-admin-rate-total

6 – https://apnews.com/article/coronavirus-pandemic-business-health-economy-gross-domestic-product-0b61a82a13f105ba668a4537fb198514

7 – https://www.bea.gov/news/2021/gross-domestic-product-third-estimate-gdp-industry-and-corporate-profits-revised-2nd

8 – https://www.cnbc.com/2021/09/30/government-shutdown-congress-moves-to-pass-funding-bill.html

9 – https://www.theguardian.com/us-news/2021/sep/30/explainer-us-government-shutdown-budget-debt-ceiling-biden-democrats

10 – https://www.cnbc.com/2021/09/22/watch-jerome-powell-speak-after-fed-wraps-up-september-meeting-live-blog.html

11 – https://www.spglobal.com/spdji/en/commentary/article/us-equities-market-attributes/

12 – Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2020, over which time period the average annual return was 9.0%. Guide to the Markets – U.S. Data are as of September 30, 2021

13 – Maryland Capital Management: Strategas Research Partners, S&P 500® Index. For illustrative purposes only. The S&P 500® Index is unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.

14 – Dalbar Inc. Indices used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Bloomberg Barclays U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz., Inflation: CPI. 60/40: A balanced portfolio with 60% invested in S&P 500 Index and 40% invested in high-quality U.S. fixed income, represented by the Bloomberg Barclays U.S. Aggregate Index. The portfolio is rebalanced annually. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/18 to match Dalbar’s most recent analysis. Guide to the Markets – U.S. Data are as of December 31, 2019. ry/

Market Commentary | August 2021

Tue, 07 Sep 2021 20:56:13 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

August was one of the year’s best months for the investors as the S&P 500, the Dow Jones Industrial Average (DJIA), and the NASDAQ Composite each hit new all-time highs. It is the seventh straight month of increases for the S&P 500 as it finished the month up 2.90%, and the index is now up 20.41% for the year. ¹ Coming in alongside market highs was earnings growth as 98% of companies in the S&P 500 have now reported for the second quarter. Earnings were expected to be higher this year relative to the lower levels caused by the virus in 2020 as estimates for second quarter earnings growth came in at 63%. However, with almost all companies having reported, earnings growth significantly outperformed expectations as it came in at 89% helping the market reach new highs. ²

Source (1)

The DJIA finished August above 35,000 as it was up 1.21% during the month and is now up 15.53% on the year. Leading the indices this month was the NASDAQ as it was up 4.00% in August and is up 18.40% on the year. Small caps stocks finished the month up over 2.00% and are up over 15% on the year. The MSCI EAFE index is inching closer to double digits for the year as it is now up 9.73%, and the MSCI EM index is now back in positive territory up 1.35% on the year. After a positive July, the U.S. Agg fell 0.19% during August and is now down 0.69% on the year. ¹

THE ECONOMY

Job creation, unemployment, and wage growth all came in with better-than-expected numbers to start the month only to disappoint with numbers from September 3 ^rd . Job creation was expected to be around 720,000 new hires in the month of August, but the Labor Department reported only 235,000. The chart below shows job creation since the start of 2020, and many point to the Delta variant of the virus as to why job creation came in unexpectedly low in August. “The labor market recovery hit the brakes this month with a dramatic showdown in all industries,” said Daniel Zhao, senior economist at jobs site Glassdoor. “Ultimately, the Delta variant wave is a harsh reminder that the pandemic is still in the driver’s seat, and it controls our economic future.” ³

Source (3)

Unemployment fell from 5.4% to 5.2% which was more in line with analyst expectations this month. Employment numbers sill remain below pre-Covid levels as there are 5.6 million fewer workers today than before the pandemic. It is not because of lack of jobs though, as the placement firm Indeed estimates that there are 10.5 million open jobs, which is comfortably a record for the United States’ labor market. ³ With 7.5 million workers about to lose their unemployment benefits on September 6 ^th , the labor reports for September will be a telling sign. ⁴ Combine that with the Delta variant causing issues and we could see changes from Congress. These numbers will be key for the Federal Reserve Board (Fed) as they look to taper their bond purchasing sometime later this year. With the strong economic numbers from July that were reported on August 6 ^th , many thought the tapering was a foregone conclusion, but September will be an important month regarding Fed policy. The Fed is likely to announce the tapering of bond purchases in November, but that does allow them time to receive more data on the labor market recovery and economic growth. ⁵ For reference, when the Fed buys bonds, it stimulates the economy by increasing the money supply. Also, keeping interest rates lower allows for more borrowing with lower financing costs and investing to stimulate the economy. These are two levers that the Fed has been pulling since the start of this pandemic. The Fed has made it clear that increasing their target interest rate will not occur until after bond purchases have been tapered.

While eyes will be on the Fed regarding their policy decisions, there are also big items on the docket for Capitol Hill with the budget resolution bill and the infrastructure bill. In a party-line vote, the House of Representatives passed the $3.5 trillion budget resolution bill on August 24th. While this allows for $3.5 million more in spending, Democrats still have hurdles to overcome as this vote allows them to write and approve a massive spending package without Republicans. They will still need to write and gain support for a budget bill before they approve the infrastructure bill which is tentatively set to be voted on by September 27th. ⁶ September is sure to be an important month from all perspectives as it relates to our economy.

CONCLUSION

While there were many headline grabbing negatives in the month of August, they could still not keep the market down. We had inflation concerns, labor shortages, and the Delta variant along with many others. These topics will continue to stay top of mind for the remainder of the year, and we can’t expect the same type of market performance or a smooth ride. Volatility spiked in mid-August as the VIX hit 24.74 before calming down to end the month as it fell to 16.67. ⁷ We expect these bouts of volatility to continue throughout the remainder of 2021 in our headline driven society. It’s important that investors maintain discipline through the volatility as the image below shows the result of the average investor trying to time the market through volatility rather than staying the course with a disciplined 60% equity and 40% fixed income (60/40) or 40/60 type of portfolio.

Source (8)

The Fed will eventually start their tapering of bond purchases, virus talk is sure to pick up during the Holiday season with potential restrictions, and Congress will try to work through both the infrastructure bill and a budget plan. Second quarter earnings season is almost complete, and we’ve had peak growth with peak earnings. As one can see, the remainder of 2021 expects to be quite eventful and there should be no surprise if the market follows suit from a volatility perspective. There are concerns on the horizon. Because of these unknowns, we continue to recommend a disciplined portfolio according to your risk tolerance and investment objectives. If you’d like to update your risk tolerance or revisit your investment objectives, please reach out to schedule a meeting today.

1 – https://www.investing.com/indices/major-indices

2 – https://www.nasdaq.com/articles/august-2021-review-and-outlook-2021-09-01

3 – https://www.cnbc.com/2021/09/03/jobs-report-august-2021.html

4 – https://www.cbsnews.com/news/enhanced-unemployment-benefits-end-whats-next/

5 – https://www.reuters.com/business/fed-likely-announce-taper-november-former-fed-official-says-2021-09-03/

6 – https://www.cnbc.com/2021/08/24/house-passes-budget-resolution-advances-infrastructure-bill.html

7 – https://finance.yahoo.com/quote/%5EVIX/history/

Market Commentary | July 2021

Thu, 05 Aug 2021 20:39:28 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

The S&P 500 continued to climb for the fifth straight month as the index hit a new all-time high on July 29 ^th . ¹ The index finished the month up 2.27% and is now up 17.02% on the year. The Dow Jones Industrial Average (DJIA) and the NASDAQ Composite both increased during the month as well finishing up 1.26% and 1.20% respectively. Both indices are now comfortably in double digit returns for the year. Small cap stocks took a significant hit as the Russell 2000 fell 3.65% during the month, but it is still up 12.73% on the year. As investors move some of their equity gains into fixed income and the Fed continues with their asset purchases, bond demand has increased leading to a return of 1.12% for the U.S. Agg in the month of July. It is now down just 0.50% on the year. ²

Source (2)

International equities were relatively flat as the MSCI EAFE Index (Europe, Australasia, Far East) was up 0.70% for the month and is now up just over 8% on the year. However, the Delta Variant is causing real problems in those countries with less access to the vaccine as the MSCI Emerging Markets index fell over 7% during the month of July and it is now down over 1% on the year. ²

THE DELTA VARIANT

The vaccine rollout continued its progress through July as more states began to ease economic restrictions. However, this progress has hit a bump in the road as the more contagious Delta variant of the virus begins to spread. The economic reopening of the country is still well on its way, but it might take longer than expected as some local governments are beginning to tighten restrictions, specifically regarding mask mandates. As of July 31 ^st , the seven-day moving average is 72,000 COVID-19 cases per day, 6,200 hospital admissions per day, and 300 deaths per day, according to data from the Centers for Disease Control and Prevention (CDC). These numbers have each increased by over 25% week-over-week. Initial research found that breakthrough infections (vaccinated individuals getting the virus) occurred at rates of 2% or less, however, the CDC published data on Friday, July 31st, that found 74% of 469 infections in an outbreak in the Cape Cod and Provincetown region were in people who were vaccinated. ³

Source (4)

Source (5)

On a positive note, the overall national vaccination rate is increasing. More than 3 million Americans have received a first shot of a COVID-19 vaccine in the past seven days. As of August 2 ^nd , at least 49.7% of people in the U.S. have now been fully vaccinated, and 70.0% of those over 18 years of age have received one shot, according to the CDC. ³ There is still more research to be done, and regardless of your opinion, this is something that health officials and governments will be taking seriously for the foreseeable future. We do not believe that this will hinder economic growth the way that the initial variant did in early 2020, but it is something to monitor as we move forward, particularly regarding how state and local governments react.

CONGRESS

Continuing with discussions of government reactions, not much progress was made during the month of July regarding President Biden’s infrastructure bill. After months of discussion, the Senate introduced their version of the bipartisan infrastructure bill on Sunday, August 1 ^st , with hopes of passing it by August 9 ^th prior to the monthlong Senate recess. Senate Majority Leader Chuck Schumer hopes to pass this $1 trillion infrastructure bill along with a separate budget measure that would allow Democrats to approve a separate $3.5 trillion spending package without a Republican vote. The House of Representative is not scheduled back in Washington until September 20 ^th , so it will likely be a while before either bill reaches the desk of President Biden. While midterm elections occurring in November of this year could cause even more of a delay, House Speaker Nancy Pelosi has said that she has no interest in bringing up either bill in the House until both pass through the Senate. This has caused quite the stir among Republicans as most would prefer the passing of the $1 trillion bipartisan infrastructure bill and not the budget measure. ⁶ Not including the two bills mentioned, since March of 2020, the amount of government aid is nearly $6 trillion. ⁷

ECONOMIC DATA

According to a Reuters survey, the economy likely grew at an annualized rate of 8.5% in the second quarter of 2021 which would be the second-fastest GDP growth pace since the second quarter of 1983. First quarter GDP growth checked in at a rate of 6.4% but it is subject to revision. Similar economists project an overall growth rate of 7% for U.S. GDP in 2021, the strongest growth rate since 1984. ⁷ Yes, there are caveats such as the large economic decline in 2020, but this is still very positive momentum for the economic outlook moving forward.

Second quarter earnings were positive as over half of the S&P 500 companies have reported with 90% of those companies beating analyst expectations. ⁸ The national unemployment rate was 5.9% for the month of June, up slightly from the 5.8% seen in May. ⁹ The United States added 850,000 jobs in June, which is the biggest gain since August of 2020 when the initial shutdown was ending. As more jobs are added, companies are finding it more difficult to higher skilled workers which is leading to higher wage growth as potential employees are demanding higher wages. The consumer price index (CPI) was up 5.4% year over year in June as the number surprised for a fourth consecutive month. ⁸

Source (10)

INFLATION AND THE FED

Inflation was still in the headlines throughout July, and while many people look to the CPI as a proxy for inflation, the Federal Reserve Board (the Fed) focuses on the personal consumption expenditure deflator, or PCE-deflator, as it discusses policy. The PCE-deflator was up 4.0% in June of 2021 relative to June of 2020, and it is 0.5% higher than it was in May of this year. Excluding food and energy prices which tend to move more erratically, prices were still up 3.5% from a year ago and up 0.4% month over month. While the Fed has taken a more hawkish stance as of late, the higher than anticipated rise in inflation has challenged the Fed’s timeframe for tightening monetary policy, and on July 28 ^th , the Fed announced its intention to leave interest rates and bond purchases unchanged for now. The Fed is set to revisit tapering bond purchase during the August meeting and most believe they will begin to implement before the end of the calendar year. ¹¹

CONCLUSION

The S&P 500 increased for the fifth straight month in July; its longest winning streak since 2018, but treasury yields in the U.S. are the lowest they’ve been in 18 months. According to Hugh Gimber, Global Market Strategist of J.P. Morgan, such a sharp decline in yields would normally imply a significant downgrade to the growth outlook, but there appears to be a wide range of factors behind the move. Demand has been strong as you combine the Fed’s purchases with institutional investors looking to rebalance at the end of the quarter as they take some of their equity gains off of the table. Hugh believes that the bond market is not sending a negative signal about the health of the economy. The current level of Treasury yields appears inconsistent with the strength of the recovery, and in our base case we expect yields to move higher over the remainder of the year. ⁸ To quote Fed policy makers, “The path of the economy continues to depend on the course of the virus.” ¹ Growth potential still remains as consumers have plenty of money to spend while the Fed and government officials continue to provide their support. However, the wildcard in this scenario is the Delta variant of the Covid-19 virus. If you asked us in early March of 2020, almost none of us could have envisioned the future large-scale shutdown and the effect on our economy that would follow, and I’m sure most of us are thinking the same thing as of now. While we have a much better handle on health and safety protocols, this is still a new variant of the virus with a small sample size of research relative to the initial alpha variant. As we move through the month of August, Greg Bassuk, CEO of AXS Investments, states, “Of all the months to date, August is really going to be that watershed month where we have enough information between Covid, earnings and economic data that will give investors greater confidence in where we’re moving and the balance of the year.” ¹ So, while there is growth potential, it is likely going to be a volatile remainder of the year and we will need continuing monitoring both the virus and the Fed/government response. If you’d like to revisit your portfolio and/or discuss your risk tolerance, please reach out to schedule a meeting today.

1 – https://www.forbes.com/advisor/investing/august-2021-stock-market-outlook/

2 – https://www.investing.com/indices/major-indices

3 – https://www.marketwatch.com/story/the-delta-variant-is-more-than-twice-as-contagious-as-previous-strains-of-the-virus-federal-health-officials-say-as-they-urge-vaccinations-11627942638

4 – https://covid.cdc.gov/covid-data-tracker/#trends_dailytrendscases

5 – https://covid.cdc.gov/covid-data-tracker/#vaccinations

6 – https://www.cnbc.com/2021/08/02/infrastructure-senate-to-vote-on-bipartisan-bill.html

7 – https://www.reuters.com/world/us/fiscal-stimulus-vaccines-likely-fueled-us-economic-growth-second-quarter-2021-07-29/

8 – https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/mi-monthly-market-review.pdf

9 – https://www.statista.com/statistics/273909/seasonally-adjusted-monthly-unemployment-rate-in-the-us/

10 – https://www.bls.gov/cpi/

11 – https://www2.deloitte.com/us/en/insights/economy/global-economic-outlook/weekly-update.html -2021-06-16/

Market Commentary | June 2021

Sat, 05 Jun 2021 20:25:41 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

The S&P 500 Index continues to climb in June as it finished the month up 2.22% leading to a 14.41% increase on the year. The technology heavy NASDAQ led the way during the second quarter as it was up 9.50% on the quarter following a strong June, and it is now up 12.50% on the year. The Dow Jones Industrial Average (DJIA) did not follow suit during the month of June as it was down 0.08%, but the index is still up nearly 13% on the year. ¹

Source (1)

The Russell 2000 small cap index continues to lead during 2021 as it is now up 17.00% on the year after a 2.32% increase for the month of June. Both the MSCI international and emerging market indices were down during the month of June, but the MSCI EAFE is still up 7.33% on the year and the MSCI Emerging Markets Index is up 6.46% for 2021. Fixed income continued a steady second quarter as the Bloomberg Barclays US Aggregate Bond TR index was up 0.70% for the month leading to an increase of 1.83% during the quarter. The U.S. Aggregate Bond index is still down 1.48% on the year. ¹

THE ECONOMY

THE PANDEMIC

As we enter the second half of 2021, the economy is experiencing a rapid reopening process. This, along with fiscal policy, will be drivers for economic numbers in 2021 and 2022 according to Dr. David Kelly, the Chief Global Market Strategist for J.P. Morgan. ² The rapid reopening process is a testament to how the United States handled the coronavirus pandemic in the first half of 2021. As you can see from the left image on the next page, fatalities and case numbers have dramatically decreased since January of this year; both by over 90%. ³

Source (3)

There is the new, more contagious Delta variant of the virus that has caused concern, but much of that concern is related to unvaccinated individuals. There is much more to learn about the Delta variant, but the best protection against the virus has proved to be the vaccine. ⁴ As of July 5 ^th , 2021, over 157 million people in the United States were considered fully vaccinated. ⁵ When you combine that number with those that have been previously infected by the virus, it is estimated that nearly 75% of the United States population is considered immune to the virus which is shown in the right image above. ³ It is not a coincidence that the rapid decrease in cases and fatalities shown in the left image above is a direct result of the rise in vaccinations shown in the right image. Nearly all COVID-19 deaths in the U.S. are now people who were not vaccinated. Of the 18,000 deaths from the virus that occurred in May, only 150 of those individuals were vaccinated. ⁶

As the vaccination numbers go up and the case numbers go down, the economy continues to experience a rapid reopening. The image below shows economic activity in the United States since the start of the pandemic. Starting in March of 2021, the graph changes to a year over “2 years ago” number to represent current monthly activity compared to monthly activity prior to the pandemic. The image on the next page shows that activity continues to steadily increase with the number of people eating in restaurants, navigation app usage, and TSA traveler traffic representing the largest bounce backs from their lows last year. ⁷

Source (7)

FISCAL POLICY

The other main driver to the U.S. economy will be fiscal and monetary policy. Fiscal policy, which is reflected by government decisions, will be represented more in the near term while monetary policy decisions by the Fed will continue to play out over time. On Thursday, June 24 ^th , President Joe Biden announced “we have a deal” related to a major infrastructure initiative after meeting with a group of bipartisan Senators resulting in nearly $600 million of new spending. Of the nearly $600 million, over $300 million will go towards transportation such as roads, railroads, and public transit. ⁸ As of July 6 ^th , a Bipartisan group from the House of Representatives backed the Biden-Senate infrastructure deal. ⁹ Many Democrats believe the bill is too small, but Biden believes that if he will be able to get his party to pass the bill. Some believe that Biden agreed to the trimmed down version of his infrastructure plan in order to get some form of his American Families Plan through Congress. ¹⁰ This is important as it could lead to even more fiscal stimulus finding the pockets of Americans by making the Dependent Care Tax Credit permanent, extending the Child Tax Credits for another five years, and making the Earned Income Tax Credit permanent as well. ¹¹ Fiscal policy is important to monitor this year. It will become more difficult to pass items through Congress as we approach the midterm elections in November of 2022, and it is unlikely that the Democrats maintain complete control. In the meantime, more fiscal stimulus in 2021 will continue to be reflected in GDP numbers.

GDP

As the economy continues to reopen, estimates for 2021 second quarter US GDP are coming in just shy of 10% at an annualized rate. This follows 4.3% growth in the fourth quarter of 2020 and 6.4% growth in the first quarter of 2021. ¹² Dr. David Kelly of J.P. Morgan stated that if this does hold true, it will place US GDP over 1% higher than it was after the fourth quarter of 2019 and the country will have recovered all of its pandemic losses. GDP growth can be attributed to a myriad of things including the economic reopening, pent up savings, production increases due to low inventory, and child tax care credits starting to pay out on July 15 ^th as a result of the American Rescue Plan. ²

Source (13)

MONETARY POLICY

The Federal Reserve Board (Fed) is set to meet at the end of July and then again in September with their annual Jackson Hole meeting between the two. ¹⁴ As the Fed continues to meet, the focus remains on two items: bond purchases and interest rates. When the Fed purchases bonds, it increases bond prices thus lowering interest rates, and therefore stimulating the economy. The same effect is had when they target a lower federal funds rate which makes the cost of borrowing lower and again, stimulates the economy. The Fed has been pulling these two levers for quite some time as the economy heals, but as GDP continues to increase and unemployment continues to decrease, many believe things could start to change. The Fed has stated before that they plan to keep interest rates as is at 0.00 to 0.25 % until 2023, but it’s possible that they could start tapering bond purchases at the end of this year. These lower interest rates lead to inflation which seems to be the headline fear for consumers today. The target inflation rate for the Fed is typically 2%, but most believe that the Fed will allow it to run higher before they pull levers attempting to lower it. Previous comments made by the Fed lead the public to believe that they think this current inflation is transitory, or temporary in nature, and that is why they have yet to do anything to lower it. ¹⁵ However, as wage growth continues, the public begins to expect inflation. As they expect inflation, they will demand higher wages, and inflation may end up being less temporary than initially thought. ² Currently the Fed purchases $120 billion in bonds each month. Most experts believe that after one of their next three meetings, they will announce the tapering of bond purchases potentially ending all purchases by the end of 2022 before they begin to raise their target interest rates. ¹⁶ All of this is to say that the Fed will likely continue to let inflation run doing their part to support the economy until they believe unemployment has reached a low enough level.

CONCLUSION

The United States economy is reopening, GDP is growing back above pre-pandemic levels, more fiscal stimulus could be on the horizon, and monetary policy continues to be easy. These have all attributed to markets reaching all time highs and continuing to grow. Because of this, it is important to look at the fundamentals and valuations in the equity market. United States growth stocks have been on quite the run as we saw a flight to quality during the pandemic and the introduction of a mass amount of younger, lower income retail investors. It’s possible this continues as the stimulus continues but valuations are high, and there is merit in leaning towards value stocks over growth stocks. As the rest of the world catches up to the United States in terms of vaccinations and economies reopening, there is value to be had internationally, specifically in select emerging market countries. This all leads to a globally diversified balanced equity portfolio. However, equity markets have been on quite the uninterrupted bull run since November of 2020, but the S&P 500 has experienced an average intra-year drop of 14.3% each year since 1980. ² Volatility is present and possible as retail investors continue to flood the markets. Portfolios may need something to offset equity markets should a correction occur and that is where high quality fixed income will fit. In order to achieve yield through fixed income, portfolios may need to move down in credit quality with a portion of the fixed income allocation. There are countless scenarios that could play out through the remainder of the year related to the virus, fiscal decisions, monetary decisions, and unexpected market events. We continue to emphasize a balanced approach given the state of the market based on your risk tolerance. As David Lebovitz from J.P. Morgan states, “It’s important to focus on a diversified approach as it leads to a more comfortable ride. If you are comfortable, you are likely to remain invested, and staying invested gives you the best chance to achieve a successful retirement.” ² If you’d like to revisit your portfolio and discuss your risk tolerance, investment objectives and expectations, please reach out to schedule a conversation today.

1 – https://www.investing.com/indices/major-indices

2 – https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/

3 – Source: Centers for Disease Control and Prevention, Johns Hopkins CSSE, Our World in Data, J.P. Morgan Asset Management. *Share of the total population that has received at least one vaccine dose. **Est. Infected represents the number of people who may have been infected by COVID-19 by using the CDC’s estimate that 1 in 4.6 COVID-19 infections were reported. ***Est. Infected & vaccinated assumes those infected equally likely to be vaccinated as those not infected. On 5/6/21, we moved up our threshold for herd immunity from 60-80% to 70-90% based on the comments by Dr. Anthony Fauci that the prevalence of more contagious variants have pushed up the target herd immunity threshold for the U.S. – J.P. Morgan – Guide to the Markets – U.S. Data are as of June 30, 2021.

4 – https://www.yalemedicine.org/news/5-things-to-know-delta-variant-covid

5 – https://ourworldindata.org/covid-vaccinations?country=USA

6 – https://apnews.com/article/coronavirus-pandemic-health-941fcf43d9731c76c16e7354f5d5e187

7 – Source: App Annie, Chase, Mortgage Bankers Association (MBA), OpenTable, STR, Transportation Security Administration (TSA), J.P. Morgan Asset Management. *Beginning 3/15/21, all indicators compare 2021 to 2019. Prior to 3/15/21, figures are year-over-year. Consumer debit/credit transactions, U.S. seated diners and TSA traveler traffic are 7-day moving averages. App Annie data is compared to 2019 average and includes over 600 travel and navigation apps globally, including Google Maps, Uber, Airbnb and Booking.com. Consumer spending: This report uses rigorous security protocols for selected data sourced from Chase credit and debit card transactions to ensure all information is kept confidential and secure. All selected data is highly aggregated and all unique identifiable information—including names, account numbers, addresses, dates of birth and Social Security Numbers—is removed from the data before the report’s author receives it. – J.P. Morgan – Guide to the Markets – U.S. Data are as of June 30, 2021

8 – https://www.cnn.com/2021/06/24/politics/biden-infrastructure-meeting-senators/index.html

9 – https://www.bloomberg.com/news/articles/2021-07-06/bipartisan-house-group-backs-biden-senate-infrastructure-deal

10 – https://www.washingtonpost.com/politics/biden-shift-reassures-republican-senators-on-bipartisan-infrastructure-deal/2021/06/27/acbf18b8-d758-11eb-9bbb-37c30dcf9363_story.html

11 – https://www.whitehouse.gov/american-families-plan/

12 – https://www.reuters.com/business/us-weekly-jobless-claims-fall-first-quarter-gdp-unrevised-64-2021-06-24/

13 – Source: BEA, FactSet, J.P. Morgan Asset Management. Values may not sum to 100% due to rounding. Forecasts are not a reliable indicator of future performance. – J.P. Morgan – Guide to the Markets – U.S. Data are as of June 30, 2021.

14 – https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

15 – https://apnews.com/article/inflation-health-coronavirus-pandemic-business-6e7c813472a3eb706e0cdafe305c1477

16 – https://www.reuters.com/world/us/fed-expected-flag-start-monetary-policy-shift-debate-2021- 06-16/

Market Commentary | April 2021

Fri, 07 May 2021 20:21:31 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

Equities fell on the last trading day of April as investors likely took their share of profits after positive news regarding corporate earnings and economic data. However, the major U.S. indices still finished in positive territory for the third straight month as the S&P 500 has hit 25 record highs thus far in 2021. ¹

Source (1)

The S&P 500 Index and the NASDAQ Composite both finished the month up by over 5%. The technology heavy NASDAQ led the way finishing the month up 5.40% and is now up 8.34% on the year. The S&P 500 is now up 11.32% on the year after posting a gain of 5.24% in April. The Dow Jones Industrial Average (DJIA) is now up double digits for the year at 10.69% after finishing up 2.72% during the month. Small cap equities continue to lead the charge in the United States as the Russell 2000 Index is now up nearly 15% on the year after finishing with a 2.02% gain in April. The MSCI EAFE and MSCI Emerging Markets Indices continue to show the importance of having a globally diversified portfolio as they both posted gains over 2% and are now up over 5% and 4% respectively. Fixed income had its first positive month of the year as the Bloomberg Barclay’s U.S. Aggregate Bond index finished the month up 0.79%, but it is still down 2.61% on the year. ¹

THE ECONOMY

For much of the last year, the United States economy has been dictated by the coronavirus. Cases and fatalities continue to steadily decline, and experts expect a steep drop in both by July through vaccinations and the continued practice of wearing masks and social distancing. ² As of March 31 ^st , 29.18% of adults in the United States had received at least one dose of the Covid-19 vaccine. That number increased to 43.32% by the end of April. ³ States are beginning to ease their restrictions and the economy is recovering more quickly than expected. New York Governor Andrew Cuomo announced that New York State will have a major reopening on May 19 ^th as many capacity restrictions will be lifted. ⁴ While other states have already lifted restrictions and removed mask mandates, it is a significant step in the right direction for our country regarding New York as it was one of the hardest hit areas from the pandemic. As more states continue to reopen in stages, the economic data continues to be positive. First quarter GDP was expected to be 6% as of March 30 ^th , but new estimates are coming in higher at 6.4% as relief checks drove consumer spending. ⁵ As you can see in the first image, weekly retail sales are now significantly above 2019 and 2020 levels. Jobless claims continue to decline at a steady pace. They have not quite reached 2019 levels, but the difference year over year from 2020 to 2021 is significant.

Source (6)

Not only has the economic data been positive, but so too have company’s earnings estimates. As of April 30 ^th , the first quarter earnings season has seen a record 87% of S&P 500 companies top estimates with earnings growth on average of 46%. Economic reports to watch in the coming days include updates on ISM manufacturing, construction spending, factory spending, and the March jobs report on Friday, May 7 ^th . ⁷

Along with the virus, our government’s response has also played a crucial role in our economy. Earlier this year, President Joe Biden signed the American Rescue Plan that put the third stimulus check in the pockets of many Americans. Since then, Biden has proposed two more plans aimed at creating jobs and reducing poverty as we come out on the other side of the pandemic. The first is the American Jobs Plan, that if approved, would put more than $2 trillion into the economy with the bulk of the plan focused on critical infrastructure. As outlined in Biden’s speech on April 28 ^th , next up is the American Families Plan that will potentially set aside another $1 trillion for individuals and families while providing $500 billion in new tax credits. ⁸ As of now, nothing has been passed, and it is likely that trimmed down versions will make it through Congress to the President’s desk. The plans will have an immediate positive impact on many Americans while others may feel the burden through taxes down the line.

Source (9)

For the better part of the last year, the Federal Reserve has been ready and willing to do what it takes by building a bridge for the economy over the pandemic. On Wednesday, April 28 ^th , Fed Chair Jerome Powell reiterated that sentiment and said that it was too early to consider rolling back the Fed’s emergency support with so many workers still left jobless by the pandemic. ¹⁰ However, on April 30 ^th , Dallas Federal Reserve Bank President, Robert Kaplan, called for beginning the conversation about reducing central bank support for the economy, warning of imbalances in financial markets and arguing the economy is healing faster than expected. ¹¹ While there has been speculation of the Fed potentially tapering back bond purchases in early 2022 or even towards the end of 2021, the comment by Kaplan is the first real sign of it being a possibility. When the Fed purchases government bonds, bond prices increase and subsequently interest rates decrease. The purchases combined with keeping the target Federal Funds rate low result in easier financial conditions to bolster the economic recovery. The economy has not yet reached the Fed’s goal of full employment and 2% inflation, but it is an ongoing situation to monitor as the tapering of bond purchase will allow interest rates to rise which could hinder equities and reduced spending may cause earnings to fall.

CONCLUSION

We maintain a positive outlook for equities over the course of the year as the economy continues to recover. Equity valuations are seen as relatively high, but they are supported by current low interest rates. Still, there are real concerns on the horizon in 2022 as future tax increases and the Fed’s ongoing response could alter equity markets. Regarding bonds, potential inflation will erode purchasing power and will typically have a negative impact on a fixed income portfolio. While the market will go up over time, it does not go up in a straight line, and we do expect bouts of volatility for the remainder of 2020. With today’s news cycle, the volatility can come quickly, but even in our current bull market, corrections are seen as sign of a healthy markets. Thus, it is important to maintain a disciplined approach, but also a well-diversified one. The current environment for fixed income may not seem attractive as the Bloomberg Barclay’s U.S. Aggregate Bond Index is down almost 3% on the year. ¹ Rising yields lead to falling bond prices, and the 10-year treasury yield has increased by over one percent from 0.64% in April of 2020 to 1.65% in April of 2021. ¹² It may even seem like you are missing out on returns by not placing more of your money in the stock market as the major equity indices continue to climb month after month and fixed income remains negative. But there are known concerns for the equity market as mentioned above, and there are also unforeseen events like the pandemic that can have unknown affects on your investment portfolios. While bonds may seem unattractive in our current environment, it is important to have the correct allocation to fixed income based on your risk tolerance to protect your portfolio through the volatility. If you’d like to revisit your current asset allocation or your risk tolerance, don’t hesitate to reach out for a review of your financial plan.

1 https://www.investing.com/indices/major-indices

2 https://www.cleveland.com/coronavirus/2021/05/experts-predict-steep-drop-in-coronavirus-infections-by-july-through-vaccinations-masks-and-social-distancing.html

3 https://ourworldindata.org/covid-vaccinations

4 https://www.wivb.com/news/new-york/watch-governor-cuomo-gives-covid-19-update-from-nyc/

5 https://www.bea.gov/news/2021/gross-domestic-product-first-quarter-2021-advance-estimate

6 https://www.ftportfolios.com/common/contentfileloader.aspx?contentguid=29a8d578-379d-43a2-bd43-54b0407395db

7 https://seekingalpha.com/article/4423506-wall-street-breakfast-week-ahead

8 https://www.cnet.com/personal-finance/bidens-next-two-stimulus-bills-5-ways-the-new-packages-could-bring-you-more-money/

9 https://www.omfif.org/policy-tracker-fed/

10 https://www.reuters.com/business/fed-likely-stay-course-despite-us-economys-growing-momentum-2021-04-28/

11 https://www.reuters.com/business/feds-kaplan-sees-financial-market-excesses-eyes-qe-taper-2021-04-30/

12 https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

Market Commentary | May 2021

Wed, 05 May 2021 20:08:48 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

The markets started off strong in May before running into inflation fears towards the middle of the month. After those fears were somewhat curbed by the Fed, markets rallied to end the month. The S&P 500 index is up nearly 12% on the year after it finished the month of May up 0.55%. This is the fourth positive month in a row for the index after it finished down just over 1% in January. The Dow Jones Industrial Average (DJIA) finished the month up nearly 2% and is now up 12.82% on the year. The technology heavy NASDAQ did not fair as well during the month as it declined 1.53% and is now up 6.68% on the year. Small cap stocks were relatively flat for the month as the Russell 2000 finished up 0.11%. The MSCI EAFE and EM indices both finished in positive territory as well. 1 As we enter the summer months, June has traditionally been a weak month for markets as the DJIA is averaging 0.12% over the last 50 years, and it is down an average of 0.7% over the last 20 years. However, July and August are traditionally good months for the index as it averages an increase of 3% over its 125-year history. 2

Source (1)

Source (2)

EARNINGS

The first quarter earnings season is officially coming to a close as over 95% of the companies in the S&P 500 have reported. Of those companies, 86% reported positive surprises for earnings per share (EPS) and 76% reported positive revenue surprises. This marks the highest percentage of companies reporting a positive EPS surprise since the firm began tracking the data. 3 FactSet began tracking earnings estimates in the second quarter of 2002. 4

THE ECONOMY

Much of the positive earnings can be attributed to poor performance in 2020, but also the pentup demand being realized as the economy reopens and the financial stimulus provided by the government. Our economy is currently expanding as evidenced by the recent ISM manufacturing numbers. The ISM Manufacturing Index rose to 61.2 for the month of May, higher than the expected 60.9. Any number above 50 means that the factory sector of the economy is currently expanding. 5

The success of the vaccine continues to lead the charge for economic recovery. Virus cases continue to decline as roughly 50% of the United States population has received at least one dose of the vaccine. 6 President Biden has set a goal of at least 70% receiving one dose by the 4th of July, 2021. 7 The CDC approved Pfizer’s vaccine for individuals as young as 12, and also announced

that fully vaccinated individuals do not need to wear a mask in public. 8 All positive signs towards the full reopening of the U.S. economy. Larger cities are beginning to fully reopen as Chicago has announced that it plans to be fully open by July 4th, 2021. 9

Source (10)

Jobless claims reached a new pandemic low on May 27th as they came in at 406,000 which is lower than the estimate of 425,000. The May jobs report comes out on Friday, June 4th, and it will be closely watched considering the large disappointment in April. New job estimates were 1,000,000 for April and they came in at only 266,000 while unemployment creeped back up over 6%. That was seen as a large disappointment as the economy currently has millions of unemployed citizens combined with a worker shortage. Bloomberg reported that, “many employers say they are unable to fill positions because of ongoing fears of catching the coronavirus, child-care responsibilities and generous unemployment benefits.” Despite this, there is still positive news surrounding May as estimates are coming in with an unemployment decrease to 5.9% and a job increase of 674,000. 11

THE FED

As previously mentioned, the Fed’s comments regarding inflation helped to spark the equity rally that finished out the month of May. On May 19th, the Fed released their minutes from their April meeting stating that it may be time to reassess the plan of their bond purchases should the economy continue to grow at such a rapid pace. 12 This is a shift from their comments in March and the first real sign that the Fed is entertaining the idea of tapering back their bond purchases. These comments helped to curb fears of inflation.

The Federal Reserve is scheduled to meet again on June 15-16, and it is always critical to monitor their response to the current economic conditions. The remainder of 2021 will be a question of if the Fed will stick to its word. Will they maintain their current target interest level and continue to buy bonds each month? Inflation rose 4.2% year of year for the month of April which can be expected considering the low levels in 2020, but it also rose 0.8% from March to April of 2021 which is hard to ignore. 13 As of now, the Fed maintains that current inflation fears are transitory. However, if they keep target interest rates at 0.00% to 0.25% and continue to purchase $120 billion worth of bonds each month, inflation may not be temporary after all. Jay Hatfield, founder, and CEO of Infrastructure Capital Advisors claims that the fed will have to change its messaging in the coming months stating, “The idea that they’re not going to taper, and inflation is transitory is not sustainable.” 14

Evidence supporting the Fed staying the course can be found as the Fed has stated that they will maintain their current outlook until they see signs that the economy is truly healing and unemployment is back to lower levels. Until the Fed believes that inflation is too high or that the economy will be able to progress without this much monetary support, we will continue to see lower interest rates. The Fed’s main weapon to combat inflation is higher rates, but higher rates could lead investors to choose higher yielding fixed income investments over equities. The Fed is not expected to raise rates until 2023, but they could decrease bond purchases as early as 4th quarter 2021. The Fed’s response will be one of the more important items to follow in the coming months as Jay Hatfield stated, “Fed watching is always critical. If you get Fed policy right, you get the market right” in terms of the direction it’s headed. 14

CONCLUSION

As we’ve stated for much of 2021, there will be volatility ahead. The choppy month of May for the markets has proved that. The S&P 500 started the month off strong, fears of inflation caused a slight pull back, and the release of the Fed’s meeting minutes sparked the month end market rally. We believe the economy is in more of a reflationary environment as the economy is being stimulated back to its long-term trend line. It is a sign of “good” inflation in our eyes, which is why the Fed has yet to react. At some point, the price levels will surpass their long-term trend lines and the Fed will have to react accordingly, but we don’t believe that we are there yet. We maintain that is wise to invest in a diversified portfolio based on risk tolerance. Price levels should continue to rise and the best way to keep pace will be exposure to equity markets, but also smaller amounts of exposure to commodities that keep pace with inflation. If you’d like to revisit your risk tolerance, or discuss the current investments in your portfolio, please don’t hesitate to reach out and schedule a meeting today.

1 https://www.investing.com/indices/major-indices

2 https://www.cnbc.com/2021/05/28/jobs-report-looms-in-the-week-ahead-as-markets-enter-the-often-weak-month-of-june.html

3 https://www.nasdaq.com/articles/may-2021-review-and-outlook-2021-06-01

4 https://markets.businessinsider.com/news/stocks/first-quarter-earnings-preview-eps-highest-in-two-decades-factset-2021-4-1030272685

5 https://www.prnewswire.com/news-releases/manufacturing-pmi-at-61-2-may-2021-manufacturing-ism-report-on-business-301301816.html

6 https://www.ctvnews.ca/health/coronavirus/more-u-s-states-ease-lingering-virus-rules-as-vaccine-rates-rise-1.5448371

7 https://www.nbcnews.com/politics/white-house/biden-pushes-americans-reach-goal-70-percent-vaccinated-adults-july-n1269397

8 https://www.cnn.com/2021/05/12/health/acip-cdc-pfizer-vaccine-teens/index.html

9 https://www.nbcchicago.com/news/local/when-will-chicago-enter-phase-5-and-fully-reopen-heres-what-lightfoot-said/2520227/

10 https://covid.cdc.gov/covid-data-tracker/#trends_dailytrendscases

11 http://www.crossingwallstreet.com/archives/2021/06/cws-market-review-june-1-2021.html

12 https://www.federalreserve.gov/newsevents/pressreleases/monetary20210519a.htm

13 https://www.cnbc.com/2021/05/12/consumer-price-index-april-2021.html

14 https://www.forbes.com/advisor/investing/june-2021-stock-market-outlook/

Market Commentary | March 2021

Thu, 08 Apr 2021 19:04:39 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

After a volatile month, the S&P 500 finished at a record high when the markets closed on March 31 ^st . The index finished the month up 4.24% and is now up 5.77% on the year. As the economic recovery continues, the Dow Jones Industrial Average led the monthly performance numbers as it finished up 6.62% and is now up 7.76% on the year. The technology heavy NASDAQ finished the month in positive territory, but it continues to lag the other two indices after outperforming both in 2020. The index finished the month up 0.41% and is now up 2.78% on the year. Small cap stocks continued to inch higher as the Russell 2000 ended the month up 0.88% and is now up 12.44% on the year. The MSCI EAFE index is up just under 3% on the year after a positive month, however the MSCI Emerging Markets index fell 1.70% during the month and is now up 1.95% on the year. The Bloomberg Barclay’s U.S. Aggregate Bond index fell 1.25% in March and is now down 3.37% on the year. ¹

Source (1)

THE ECONOMY

As has been the case for much of the last year, the economy is shaped in large part by the pandemic and our country’s policy response to challenges that have come to light because of the virus. The first quarter of 2021 was one of transition. There was the transition in the White House and on Capitol Hill, and towards implementation of the Covid-19 vaccine. The transition in Washington, D.C. will dictate our country’s policy response to the virus while the vaccines have taken center stage regarding the pandemic.

Since March of 2020, the economy has experienced a massive drop followed by a surge and we continue to inch forward in our new social distancing driven economy. Final numbers for GDP growth in the fourth quarter of 2020 came in at 4.3%. ² The month of March closed with strong economic numbers and estimates for first quarter GDP growth are now at 6%. GDP numbers are seasonally adjusted annual rates. In March, personal consumption growth increased from 5.6% to 6.9% and private investment growth increased from 2.4% to 6.9%. ³ The ISM Index also reaching its highest level since 1983 as it climbed to 64.7 in March, up from 60.8 in February. ⁴ Goldman Sachs now estimates GDP to finish the year up 8% year over year which would signal a full recovery to pre-pandemic levels. For reference, U.S. GDP has not grown 8% in a year since 1951. ⁵

Nonfarm payrolls increased by almost 1,000,000 in March and the unemployment rate fell to 6.0%, an improvement from 6.2% in February. ⁶ Unemployment reached its pandemic peak of 14.8% in April of 2020. After the announcement of the most recent stimulus package in March, the Fed estimated inflation will reach 2.4% this year, above its previous estimate of 1.8%. ⁷ Earnings for companies in the S&P 500 were down 11% in 2020, however, they are projected to increase by over 25% in 2021. ⁸ That is positive news for equities, but we do want to exercise caution as we look at estimates in 2022. Higher interest rates could cause wage growth, there is the potential for higher corporate taxes, and the economy could slow as we enter 2022. Regarding the Fed, following their recent meeting on St. Patrick’s Day in March, they plan to maintain the target federal funds rate of 0-0.25 bps through 2023 and continue bond purchases throughout the remainder of 2021. ⁹ If the economy does perform as well as expected to close out 2021, it’s possible that the Fed may need to taper back bond purchases in 2022 to curb fears of inflation. As of now, inflation is still in a relatively comfortable range, but it is worth monitoring as more financial stimulus enters the economy.

THE VIRUS

As the first quarter came to an end in 2020, we were still in the early stages of the pandemic, local governments were just starting their lockdowns, and every news station had a permanent number on the side of their screen tracking the growth of coronavirus cases. Twelve months later we are still tracking cases and fatalities, but just as important is tracking our progress towards herd immunity. Herd immunity can potentially be achieved through a combination of tracking those that have been infected by the virus along with those that have been vaccinated. The first image below shows the large decrease in cases and deaths on a 7-day moving average in the first quarter of 2021 due in large part to the roll out of the vaccines. As you can see in the second image, the total number infected by the virus is starting to plateau and the number of those vaccinated is beginning to increase.

Source (10)

Source (10) - *Share of the total population that has received at least one vaccine dose. **Est. Infected represents the number of people who may have been infected by COVID-19 by using the CDC’s estimate that 1 in 4.6 COVID-19 infections were reported. ***Est. Infected & vaccinated only assumes those infected equally likely to be vaccinated as those not infected.

The percentage of the population experiencing immunity has increased to over fifty percent at the end of the first quarter, and J.P. Morgan’s analysts project that we will enter the 60-80% zone of herd immunity in April (65%) and surpass the zone by the end of the second quarter (85%). ¹¹ These numbers are supported by the image below showing the results of a recent Gallup poll. The percentage of Americans willing to get the vaccine has increased from 50% in September of 2020 up to 74% in March of 2021. ¹² The important note is that we are making progress towards herd immunity. These numbers lead us to believe that we will be in a much better spot regarding the pandemic as we enter the third quarter of 2021.

Source (12)

POLICY RESPONSE

President Joe Biden signed the $1.9 trillion American Rescue Plan on March 11 ^th . It provided direct $1,400 payments to Americans making under $75,000. It also provided aid to state and local governments, extended unemployment benefits, expanded tax credits, provided aid to small business, and helped with the Covid-19 response. ¹³

Source (13)

The plan was an economic aid package designed to help Americans and businesses survive the pandemic downturn. However, the plan did little to advance Biden’s long term economic agenda when it comes to infrastructure and transitioning to renewable energy, so on Wednesday, March 31 ^st , President Biden introduced the American Jobs Plan. The bulk of the plan is to be spent on infrastructure with over $600 billion dedicated to transportation infrastructure (highways, public transit) and another $600 billion going to community infrastructure (clean drinking water, housing, schools, VA hospitals). $580 billion will go towards research and development, manufacturing, and workforce development. The plan is rounded out with $400 million dedicated to improving elderly care. ¹⁴ The plan will still need to go through Congress, but it is likely that at least some trimmed down version of the plan is passed. How is the plan going to be funded? The likely solution is Biden’s Made in America Tax Plan that would undo a lot of changes from former President Trump’s Tax Cuts and Jobs Act in 2017. The main change is raising the corporate tax rate from 21% to 28% which is expected to raise the $2 trillion needed for funding over the next 15 years. The American Jobs Plan is the first of two plans that Biden will introduce following the passing of the American Rescue Plan. The next plan, likely to be introduced in April, will be the American Family Plan that will aim to address healthcare and education. ¹⁵ This plan will also try to extend benefits to lower and middle-income earners targeting three programs: expanding the Earned Income Tax Credit to help more Americans over the age of 65, the Dependent Care Credit for help with daycare allowing both spouses to return to work, and the Child Tax Credit. ¹¹

CONCLUSION

It has now been a full calendar year since markets experienced their massive correction due to the pandemic, and the S&P 500 ended the month of March at a new record high. It was a bumpy ride as there were concerns regarding the potential for higher inflation and rising bond yields, specifically the 10-year treasury. As alluded to earlier, corporate earnings are set to see growth of over 25% in 2021, the economy is likely to continue its expansion as U.S. real GDP is estimated at 8% growth in 2021, and more Americans are financially stable with money to spend due to a combination of financial stimulus along with pent up demand. All of those bode well for equities. However, potential inflation could prove negative for equities, and it will likely mean increased volatility throughout the remainder of the year. Even though rising yields are not a good sign for bonds, it is wise to maintain fixed income exposure due to its low correlation to equities. We recommend staying in your asset allocation driven risk-based portfolios due to the uncertainties regarding the economic recovery. We have never experienced a recovery from a pandemic in modern times, so we can’t confidently predict exactly how things will unfold. We do know that value stocks usually perform better in higher inflationary environments, but also that we do need exposure to growth as the year comes to an end and the economic recovery begins to slow. International equities still look relatively cheap from a valuation perspective and should yield higher dividends compared to their counterparts in the United States. International fixed income and emerging market debt are also providing stronger yields with higher credit quality than past years. The important take away is that there are meaningful reasons to maintain a diversified approach based on your risk tolerance, and why each asset class should have some exposure in your portfolios. It is imperative that you have the right expectations for how your portfolio should perform. If you’d like to review those expectations or revisit your risk tolerance, please don’t hesitate to reach out

1 https://www.investing.com/indices/major-indices

2 https://www.bea.gov/news/2021/gross-domestic-product-third-estimate-gdp-industry-and-corporate-profits-4th-quarter-and

3 https://www.frbatlanta.org/cqer/research/gdpnow

4 https://www.cnbc.com/2021/04/01/ism-manufacturing-march-2021.html

5 https://www.axios.com/goldman-sachs-us-economy-grow-8-per-cent-2021-eb7e1d84-b6fa-483a-9e19-37a7faddadc0.html

6 https://www.cnbc.com/2021/04/02/us-jobs-report-march-2021.html

7 https://www.cnbc.com/2021/03/17/heres-where-the-federal-reserve-sees-interest-rates-the-economy-and-inflation-going-in-the-future.html

8 https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_032621A.pdf

9 https://www.federalreserve.gov/monetarypolicy/files/monetary20210317a1.pdf

10 Centers for Disease Control and Prevention, Johns Hopkins CSSE, Our World in Data, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of March 31, 2021.

11 https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/

12 https://news.gallup.com/poll/342431/satisfaction-vaccine-rollout-surges.aspx

13 https://www.statista.com/chart/24395/composition-of-the-american-rescue-plan-act/

14 https://www.investopedia.com/what-s-in-joe-biden-s-usd2-trillion-american-jobs-plan-5120273

15 https://www.forbes.com/advisor/personal-finance/biden-american-jobs-plan/

Market Commentary | February 2021

Tue, 09 Mar 2021 22:34:26 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

Equity markets were modestly higher in the month of February after January saw both the S&P 500 and Dow Jones Industrial Average (DJIA) in negative territory.

The month of February started off strong as the S&P 500 gained 4.65% in the first week of trading, but eventually the market pulled back led by a sell off in technology stocks. Still, the S&P 500 finished the month up 2.61% resulting in a yearly gain of 1.47%. The DJIA finished the month slightly higher at 3.17% and is now up 1.06% on the year. Lagging both was the NASDAQ Composite as it finished the month up just 0.93%, and it is now up 2.36% on the year. The MSCI EAFE and Emerging Markets Indices both increased in the month of February and are now both in positive territory for the year. Leading the pack was the Russell 2000 Small Cap Index as it finished the month up 6.14% and is now up double digits in 2021 at 11.45%. As bond yields continued to creep higher in 2021, the U.S. Aggregate Bond index fell 1.44% and is now down 2.15% on the year. ¹

THE VIRUS AND THE ECONOMY

As has been the case for much of the last year, our economy and the stock market are driven primarily by progress against Covid-19. While the weekly number of virus cases and hospitalizations due to the disease spiked as we entered in to 2021, both numbers have fallen significantly in the last month as seen in the charts to the right. The 7-day moving average for vaccine doses given has increased to over 1.5 million per day as of February 25 ^th , ² and this number is likely to continue increasing with the approval of a third vaccine in the United States. ³ Chicago Mayor Lori Lightfoot announced that bars can now stay open until 1:00 AM with 50% capacity ⁴ and Texas Governor Greg Abbott lifted the statewide mask mandate while also allowing businesses to open at 100% capacity. ⁵ It is safe to say that government officials are slowly starting to ease restrictions as cases decrease and the vaccine becomes available to more people. While the virus is still a very real threat, these are encouraging signs that will hopefully lead to more progress for the economy.

On Wednesday, March 3 ^rd , payroll processor ADP reported that private sector jobs grew by 117,000 in the month of February, much lower than the 177,000 anticipated. Even though numbers were revised up by 21,000 for the month of January, it is still disappointing to see the February results. The Labor Department is set to release its monthly employment report which includes both public and private sector jobs on Friday, March 5 ^th , and economists expect that number to increase by 180,000 jobs while the employment rate is expected to remain at roughly 6.3%. Nela Richardson, ADP’s chief economist, stated that, “the labor market continues to post a sluggish recovery across the board.” She noted that large-sized companies are still feeling the effects of the virus and the service sector remains well below its pre-virus levels. ⁸ However, as the economy opens up more throughout the year and the vaccine continues its roll out, consumer confidence should rise leading to improved employment through the summer months.

Economic output still remains 2.5% below peak real GDP numbers from the fourth quarter of 2019 and was said to have expanded only “modestly” in the first part of 2021. ⁹ However, businesses remain optimistic looking toward the latter half of the year. There is room for growth in the job market as it has not recovered as quickly as initially hoped, and there is positive news with virus cases declining along with the vaccine rollout and approval of a third version. In addition, the House of Representatives passed a $1.9 trillion pandemic relief package on Saturday, February 27 ^th . ¹⁰ The Senate is will likely make revisions to the bill but they may pass their version as quickly as this weekend in order for Biden to sign the bill into law by March 14 ^th . After the Senate passes its version of the bill, it will go back to the House for approval before being placed in front of Biden for his signature. The March 14 ^th deadline is important as many unemployment benefits will expire along with some tax incentives for employers. ¹¹

Linking the relief package back to the economy and the market, the bill includes $1,400 direct checks to Americans making less than $75,000. ¹³ The savings rate increased by over 100% from 2019 to 2020 after the CARES Act was passed last April meaning that Americans have built up savings that can be used for the pent-up demand as the economy continues to reopen. One should also note that a $1,400 direct check represents a much larger percentage for lower income individuals who also have a propensity to spend rather than save. ¹⁴ Strong economic growth is likely after the injection of the fiscal stimulus, the continued vaccine rollout, and the continued reopening of the economy.

CONCLUSION

As many have seen in the news over the last week, the yield on the 10-year treasury is rising at a rapid rate. It reached as high as 1.6% during the last week of February. While that still historically low, that number was the highest we’ve seen since Valentine’s Day in 2020. ¹⁵ Rising treasury yields can signal a weakening demand for U.S. Treasuries or they can signal that the economy is beginning to strengthen, and the pent-up consumer demand will spark spending rather than saving. When you combine the decrease in Covid-19 cases, the continued rollout of the vaccines, pent-up demand, and a massive fiscal stimulus package in the first half of 2021, you are looking a large acceleration in economic growth for the second half of the year. This acceleration of growth can lead to inflation starting to bubble. The Federal Reserve has stated that they will keep target interest rates at 0 – 0.25% through at least 2023 and will continue with their bond purchases throughout the remainder of 2021. ¹⁶ All of that points to bond yields continuing to rise. If the economy is growing strong and unemployment has lowered as we look towards the end of 2021, it is possible that inflation could be higher than projected. If that is the case, the Fed will likely ease their bond purchasing causing yields to increase even more making high quality fixed income less attractive. ¹⁷

As Dr. David Kelly from J.P Morgan stated in his weekly market recap, these rates (yields and inflation) are rising for the right reason, an economic recovery, and that is a good sign for equities moving forward. ¹⁴ Regarding the fixed income portion of your portfolios, the yield on the higher quality fixed income remains historically low, even though it is rising. Therefore, some may be looking to move down the credit spectrum to receive a stronger yield, however those spreads have also narrowed. ¹⁷ We believe that one needs to set the expectation for fixed income and that expectation is either regarding yield or correlation to equities. Is the fixed income investment in your portfolio meant for income? Is it meant to provide protection when equity markets do falter? Or possibly both? For the longer term, the lower credit instruments will provide yield and growth, but we still believe that high quality fixed income investments will provide the necessary protection in the short term against equities if they are truly overvalued and a correction is on the horizon. There are plenty of moving pieces in the investment universe today as we look at the virus, the economy, and the Fed; because of this, volatility is likely to continue for the foreseeable future and we maintain a recommendation to a diversified portfolio in order to participate in the economic growth while also protecting against said volatility. If you’d like to revisit your portfolio, or if your objectives have changed, don’t hesitate to reach out and schedule some time to review.

1 https://www.investing.com/indices/major-indices

2 https://covid.cdc.gov/covid-data-tracker/#vaccination-trends

3 https://www.fda.gov/news-events/press-announcements/fda-issues-emergency-use-authorization-third-covid-19-vaccine#

4 https://www.chicagotribune.com/coronavirus/ct-chicago-coronavirus-restaurants-bars-fitness-restrictions-20210302-pcgu6fa2zjayzcyvphqagyhhhe-story.html

5 https://www.cnn.com/2021/03/02/us/texas-governor-mask-mandate/index.html

6 https://app.powerbigov.us/view?r=eyJrIjoiY2ZjYzY4ZDgtOWRiMi00MTJlLWI0ZWEtODc5MTE2ZDA3OWNkIiwidCI6IjljZTcwODY5LTYwZGItNDRmZC1hYmU4LWQyNzY3MDc3ZmM4ZiJ9

7 https://covid.cdc.gov/covid-data-tracker/#trends_dailytrendsdeaths

8 https://www.nasdaq.com/articles/u.s.-private-sector-job-growth-falls-well-short-of-estimates-in-february-2021-03-03

9 https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/market-updates/economic-update/

10 https://www.cnn.com/2021/02/26/politics/stimulus-package-covid-relief-house-vote/index.html

11 https://www.cnn.com/2021/03/01/politics/stimulus-programs-expiring-deadline/index.html

12 https://www.daveramsey.com/blog/stimulus-package

13 https://www.cnn.com/2021/02/05/politics/stimulus-checks-congress-negotiations-timeline/index.html

14 https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/weekly-market-recap-us.pdf

15 https://www.cnbc.com/2021/02/25/us-bonds-treasury-yields-rise-ahead-of-fourth-quarter-gdp-update.html

16 https://www.usatoday.com/story/money/2021/01/27/fed-interest-rates-fed-keeps-key-rate-near-zero-maintains-bond-purchases/4278894001/

17 https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/market-updates/on-the-minds-of-investors/money-moves-how-should-investors-be-positioned-within-the-fixed-income-market-and-where-have-dollars-actually-gone/

18 https://www.fidelity.ca/fidca/en/investor/sixstrategiesvolatilemarkets

Source (1)

Source (6)

Source (7)

Source (12)

Source (18)

"We believe that one needs to set the expectation for fixed income and that expectation is either regarding yield or correlation to equities."

Market Commentary | January 2021

Fri, 05 Feb 2021 16:32:23 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

After a strong start to the year, the S&P 500 fell just over 3% during the final week of January causing the index to finish the month down 1.11%.

The Dow Jones Industrial Average (DJIA) followed suit and ended the month down 2.04% after also falling over 3% in the final week. ¹ It was a tale of two halves to begin the year as the markets initially reflected optimism regarding a new stimulus package from the Biden Administration and positivity regarding the vaccine roll out. The optimism was curbed as retail investors sparked unforeseen volatility in the equity markets causing a slight de-risking in portfolios during the last week of the month.

The technology heavy NASDAQ Composite continued to outperform relative to the S&P 500 and DJIA finishing the month up 1.42%. Small-cap stocks led equity markets in the United States as the Russell 2000 finished the month up 5.00%. Emerging markets also outperformed to start the year as the MSCI EM Index finished the month up 2.97% led by strong performance from China. ¹

THE ECONOMY

The United States’ economy continued to recover in the fourth quarter, but at a slower rate. After the record surge in the third quarter that saw GDP rise 33.4% on an annualized basis (a reflection of the drastic drop in the second quarter), fourth quarter estimates show a modest 4.0% annualized increase. The slowdown was a bit more than expected as the Covid-19 pandemic worsened towards the end of the year. Overall, U.S. GDP fell 3.5% annualized in 2020 which marks the first contraction since 2009 and the largest decrease since 1946. ²

As new coronavirus infections hindered growth in the fourth quarter, it also led to a 140,000 decrease in non-farm payroll jobs for the month of December which was much lower than the expected increase of 50,000. ⁴ This led to a slight increase in initial jobless claims in January as 847,000 new claims were filed for the week ending on January 23 ^rd . For reference, weekly jobless claims were closer to 200,000 prior to the pandemic. ⁵ As the non-farm payroll jobs decreased and the pandemic worsened to end the year, personal consumption finished lower than expected at a 2.5% increase. ⁶ All in all, the economy is healing, just slightly slower than expected.

The month of January started with great political tension as the Georgia Senate run-off was held on January 5 ^th followed by the Capitol Hill riots the next day as Congress met to certify the Presidential Election. Ultimately, the Democrats emerged victorious in both Georgia Senate races to take control of the Senate (the Senate is now split 50/50 with Vice President Kamala Harris holding the tiebreaking vote). The Presidential Election was eventually certified late in the evening on January 6 ^th and President Joe Biden took office on January 20 ^th . He began his term in office with numerous executive orders that will greatly impact our country moving forward. While there is still a political divide in our country, we believe the political certainty provided during the month of January can be seen as a good thing for both the economy and markets.

Even with the economy growing at a slightly slower pace than expected in the fourth quarter, there is optimism moving forward as it relates to the vaccine, monetary policy, and fiscal policy. As of February 3 ^rd , over 33 million Americans have received the Covid-19 vaccine whether it be from Moderna of Pfizer. ⁷ There has also been positive news on the Johnson & Johnson single shot vaccine which should only help increase the speed of getting the vaccine to more Americans. ⁸ The Biden Administration announced details of a $1.9 trillion-dollar Covid-19 relief plan titled the American Rescue Plan. This large amount is unlikely to be passed as it requires a 60-vote approval in the Senate meaning that 10 Republican Senators would have to agree to it. It’s possible the Democrats use a special reconciliation process to only require a simple majority to pass the bill. ⁹ However, common ground may be found closer to the $1 trillion range considering Republicans countered Biden’s plan with a $618 million package. ¹⁰ Lastly, the Federal Reserve stated that they will keep target interest rates at 0 – 0.25% through at least 2023 and will maintain their monthly bond purchases likely through the end of 2021 in order for the economic recovery to continue. ¹¹

CONCLUSION

The month of January seemed to be a continuation of 2020 with the political divide at the beginning the month and the retail investor frenzy to end the month, but there is an overall sense that we are getting closer to pre-virus norms. We believe equity markets should continue their momentum from the second half of 2020 supported by continued economic growth, improved earnings from companies affected by the pandemic, and support from both monetary and fiscal policy. We must continue to persevere through the pandemic as Covid-19 is still very much a risk with unknowns surrounding other strains. Thus, the recovery could continue to move along slower than expected. It is possible further stimulus is hindered by the 50/50 split in the Senate and we are still in a headline driven society that lends itself to market volatility. Because of this, we believe it is wise to continue to maintain a well-diversified balanced approach to investing based on your risk tolerance. The focus is still on quality in the United States, and as the global economic recovery continues, we believe that there are opportunities in international equities and all market caps in the United States as evidenced by the recent performance in small cap. If you’d like to revisit the holdings in your portfolio or update your risk tolerance and objectives in the New Year, don’t hesitate to reach out and schedule a meeting today.

1 https://www.investing.com/indices/major-indices

2 https://www.reuters.com/article/us-usa-economy/covid-19-savages-u-s-economy-2020-performance-worst-in-74-years-idUSKBN29X0I8

3 https://finance.yahoo.com/news/4q-gdp-2020-us-economy-coronavirus-pandemic-180133456.html

4 https://www.bls.gov/opub/ted/2021/payroll-employment-down-140000-in-december-2020.htm?view_full

5 https://finance.yahoo.com/news/initial-jobless-claims-for-week-ending-jan-23-001546390.html

6 https://www.thebalance.com/consumer-spending-trends-and-current-statistics-3305916

7 https://www.statista.com/statistics/1194931/covid-vaccine-doses-administered-by-state-us/

8 https://www.bbc.com/news/health-55857530

9 https://www.cbsnews.com/news/stimulus-covid-relief-democrats-1-9-trillion-plan/

10 https://www.forbes.com/advisor/personal-finance/gop-proposal-1000-stimulus-checks/

11 https://www.usatoday.com/story/money/2021/01/27/fed-interest-rates-fed-keeps-key-rate-near-zero-maintains-bond-purchases/4278894001/

12 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

Source (1)

Source – Bureau of Economic Analysis (3)

Source – U.S. Department of Labor (5)

Source (12)

Market Commentary | December 2020

Wed, 06 Jan 2021 23:22:35 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

The calendar year of 2020 has come to an end, so let us start by wishing everyone a Happy New Year!

While the S&P 500 was down 34% at one point this year, the index finished the year up 18.40%. December helped the index finish the year off strong posting a gain of 3.84%. The Dow Jones Industrial Average (DJIA) finished the month up 3.41% and was nearly up double digits on the year at 9.72%. The technology heavy NASDAQ led the way in the new social distancing type of economy. The NASDAQ finished the year up 44.92% after increasing 5.71% in the month of December. ²

While the year ended on a positive note for the markets, it was not without many bumps along the way. The image to the right shows the intra-year declines of the S&P 500 represented by the red dots. The gray/black bars showcase the final year end performance.

2020 RECAP

The year 2019 saw the market have its best performing year since 2013. ² It was also one of the least volatile years of the decade. One of the more frequent questions that we received to start 2020 was, “Why didn’t my portfolio keep up with the S&P 500?” The answer was simple. If you want to achieve higher returns, you must be willing to take on a larger amount of risk. It is imperative that you have the correct expectations for your portfolio moving forward. Conversations earlier in the year made it easier to explain the ebbs and flows of the year that followed. Fast forward three months and many investors were ecstatic that their portfolio didn’t fall the over 30% like the S&P 500. Fast forward nine more months and the S&P 500 finished the year up over 18%. It is very difficult to predict the short-term movements of the stock market, but what we can do is help to set expectations. Specifically, how a portfolio will react to given circumstances. By having a dynamic financial plan, we can take advantage of rebalancing during the large market swings to put ourselves in a better position moving forward.

A lot contributed to the large market movements and swings in 2020. So, we thought we’d briefly recap some things that feel like they occurred much longer than just a few months ago.

In January, we discussed the forthcoming Brexit at the end of the month, and geopolitical tensions between the United States and two nations. With China, we had the trade war. Phase One was ultimately signed in January. The month also saw heightened tensions between the United States and Iran with a U.S. drone strike killing an Iranian major general. The beginning of February saw those in the United States beginning to discuss Covid-19 and by the end of the month, the pandemic had begun. On Tuesday, March 3 ^rd , the Fed decided to lower interest rates, the first emergency rate move since the depths of the Financial Crisis. ⁴ March also saw the S&P 500 enter bear market territory as it fell 12.5% during the month. ² The pandemic was in full swing as nationwide lockdowns began.

COVID-19 PANDEMIC

We always say that it isn’t about timing the market, but it is about time in the market, and that rang true in April as the S&P 500 rebounded with its best month since 1987. ⁶ The index finished April up 12.7%. While the market rebounded, the economy was just beginning its downward trajectory. March saw the first large stimulus packaged being passed by the government and April saw $1,200 checks being issued to Americans under the income threshold. ⁷ The rest of April and most of May seemed like a blur to most as the country was on lockdown. Cases began to rise, mask mandates were the norm, and many small businesses were beginning to close their doors. The death of George Floyd occurred at the end of May resulting in many protests and national discussions on racial injustice. ⁸

July marked the return of both the NBA, in the bubble, and the MLB. Both of which provided a springboard for many other sports to follow. Economic activity such as travel and dining out began to rise. ⁹ In August and September, many students returned to school and football kicked into gear, however, both looked different with online learning and mostly empty stadiums. Covid-19 cases began to rise in October and November before coming to a head surrounding Thanksgiving travel. We saw the first real results of vaccine effectiveness in November, and by December the vaccine was being issued to American citizens. ¹⁰ The end of 2020 saw a rise in equity prices as investors seemingly looked past the rise in virus cases and towards news of a stimulus package from the government.

On Sunday, December 27 ^th , 2020, President Trump signed a $900 billion dollar relief package for the pandemic and a $1.4 billion dollar government relief bill. Closing out the year, Monday the 28 ^th saw the house pass a bill that would increase the recent stimulus check to Americans up to $2,000 from original amount of $600, however, the Senate did not pass the bill. ¹² Talks will continue in early 2021.

THE ELECTION

As we discuss the political divide regarding the most recent stimulus package, it is important for us to remember that the elections of 2020 aren’t yet over. There are still calls for voter fraud from President Trump, but it is seeming more and more likely that the President Elect Biden will be confirmed. Without too long of an explanation, lawmakers can object to a state’s electors if at least one representative from the House and one from the Senate decide to do so. If that occurs, the House and Senate split to vote on the objection and will have two hours to debate each state. The House will have the votes to defeat all challenges as it is controlled by Democrats. The Senate is controlled by Republicans, but they do not all agree on the matter as even Senate Majority Leader Mitch McConnel (R-Ky.) has asked he fellow Senators not to challenge. It is expected for the Senate to confirm Biden’s win as well. ¹³

The election that is still ongoing and will have repercussions into the future happens in Georgia on Tuesday, January 5 ^th . As of result of Republican Senator Johnny Isakson’s retirement in 2019, both Senate seats in Georgia were on the 2020 ballot. Kelly Loeffler was appointed to take over Isakson’s seat after his retirement, however, she still needed to win in the November election to maintain the seat. Georgia requires candidates to capture at least 50% of the vote to be declared winner. Neither Republican incumbent did so in the November election though each earned more than their Democratic competition. Current Senator David Perdue is facing off against Democratic nominee Jon Ossoff while current Senator Loeffler is running against Reverend Raphael Warnock. ¹⁴ After the November election, Republicans held the majority in the Senate by a 50 to 48 margin. If they win one seat in Georgia, they will maintain the majority, but if both seats are won by the Democrats, we will have split Senate of 50-50. When votes in the Senate end in a tie, the Vice President casts the deciding vote which will be Democrat Kamala Harris for the next four years.

There is a lot at stake in Georgia as our country will look markedly different with a Democratic controlled Senate for the next four years. We aren’t here to pick sides, but things like potential controversial cabinet appointees and control of Congress sub-committees will have a different result depending on Georgia’s outcome. This will hinder the Republicans ability in Congress. Many regulations passed by the Trump Administration are also likely to be repealed if the Democrats control the Senate. Even though the Republicans have narrowed the gap in the House, losing control of the Senate will likely lead to more of the Biden Administration’s agenda being completed in the next four years. Results are not official yet although it appears that the Democrats have won both seats. ²¹ We will cover this more in next month’s commentary.

THE VIRUS

Covid-19 is still very much a threat to the economy as we enter the new year. In the end of December, the country’s leading infectious disease expert, Anthony Fauci, stated that the worst may be yet to come. ¹⁶ And on January 2 ^nd , 2021, the United States experience its highest number of cases in a single day. ¹⁷ In the image to the right (Source 18), you can see that cases and deaths both began to plateau in the summer months, but that November and December saw quite the spike.

The good news is that the FDA has approved two vaccines for distribution, but the bad news is that these have not been administered as quickly as hoped. Officials are hopeful to be back on track in the near future. ¹⁹ With cases continuing to rise, the hope is that the vaccine will curb the increase as we get through the first quarter of 2021. What is promising for investors, and as we’ve discussed throughout the year, is that we have slowly started to adapt to a social distancing type of economy. The image to the right (Source 9) shows the large decrease in economic activity at the start of the pandemic followed by a steady rise of activity in the summer months. As you can see, activity has somewhat plateaued and did not see a drastic decrease over the last two months with the rise in cases. This is promising news to show that we are figuring out how to keep the economy afloat and can continue to keep the economy open to an extent so long as we adhere to social distancing measures and certain protocols.

BREXIT

As virus cases increase in the United States, the virus is continuing to get worse in the United Kingdom as well. Even the virus could not stop Brexit from becoming official though. The United Kingdom (U.K.) officially left the European Union (EU) on January 31 ^st of 2020, but they were stuck in an 11-month limbo under the EU trading rules as the two sides negotiated. The two sides agreed to a new deal on December 24th, 2020, and as the year 2020 came to an end, the United Kingdom was officially an independent nation once again. Some major changes that are now in effect:

The free movement of people between the UK and EU countries has ended - and has been replaced in the UK by a "points-based" immigration system
Anyone from the UK who wants to stay in most of the EU for more than 90 days in any 180-day period now needs a visa
Duty-free shopping has returned, with people coming back to the UK from the EU able to bring up to 42 litres of beer, 18 litres of wine, four litres of spirits and 200 cigarettes without paying tax
EU citizens wanting to move to the UK (except those from Ireland) face the same points-based system as people elsewhere in the world
UK police have lost instant access to EU-wide databases on criminal records, fingerprints and wanted persons. ²⁰

CONCLUSION

While the page has flipped to 2021, it is important that we remember 2020 and not forget it. There were a lot of experiences in 2020 that shaped our current environment and just because they year is over; it does not mean that the issues have passed. There will still be political tension, race issues, differing opinions regarding Covid-19 and its vaccine, and many new issues that arise in 2021. We don’t wish to frighten you or to rial anyone up, but we want to bring to light the fact that we experienced them, we survived them, and there will be more of them in the coming year. Adhering to a disciplined investment approach that took the emotion out of investing allowed portfolios to ride the ebbs and flows of the market volatility in 2020. It is important to continue that approach in 2021 as volatility is likely to continue in today’s headline driven society. Money earmarked for the long term should be invested to handle the market movements, and money needed for the short term should be allocated to cash-like investments that are not exposed to immediate market risk. It is important that our portfolios have the correct asset allocations based on our risk tolerances as 2021 moves full steam ahead. We encourage you to reach out in order to make sure that your investments align with not only your ability to take risk, but also with your appetite for risk. Having a dynamic financial plan in place helps withstand market volatility, meet short term needs, and also allocates longer-term assets to have the best chance of achieving long term goals.

1 https://www.massmutual.com/mmfunds/monthly_market_overview.pdf

2 https://www.investing.com/indices/

3 FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2020, over which time period the average annual return was 9.0%. J.P Morgan - Guide to the Markets – U.S. Data are as of December 31, 2020.

4 https://www.nytimes.com/2020/03/03/business/economy/fed-interest-rates-coronavirus.html

5 https://www.europol.europa.eu/activities-services/staying-safe-during-covid-19-what-you-need-to-know

6 https://www.marketwatch.com/story/dow-futures-rise-as-market-watches-for-jobless-claims-and-quarterly-results-from-apple-others-2020-04-30

7 https://www.cnbc.com/2020/04/13/first-coronavirus-stimulus-checks-deposited.html

8 https://www.nbcnews.com/george-floyd-death

9 Source: App Annie, Chase, Mortgage Bankers Association (MBA), OpenTable, STR, Transportation Security Administration (TSA), J.P. Morgan Asset Management. *Consumer debit/credit transactions, U.S. seated diners, and TSA traveler traffic are 7-day moving averages. App Annie data is compared to 2019 average and includes over 600 travel and navigation apps globally, including Google Maps, Uber, Airbnb and Booking.com. Consumer spending: This report uses rigorous security protocols for selected data sourced from Chase credit and debit card transactions to ensure all information is kept confidential and secure. All selected data is highly aggregated and all unique identifiable information—including names, account numbers, addresses, dates of birth, and Social Security Numbers—is removed from the data before the report’s author receives it. J.P Morgan - Guide to the Markets – U.S. Data are as of December 31, 2020.

10 https://www.washingtonpost.com/nation/2020/12/14/first-covid-vaccines-new-york/

11 https://www.kktv.com/content/news/Stimulus-checks-How-much-money-will-you-get-and-when-569132451.html

12 https://www.ftportfolios.com/Commentary/MarketCommentary/2021/1/4/week-ended-december-31,-2020

13 https://www.washingtonpost.com/politics/2021/01/04/congress-presidential-election-january-6/

14 https://www.nytimes.com/2021/01/05/us/politics/georgia-senate-election-runoff-guide.html

15 https://wpta21.com/2021/01/04/hoosiers-have-reason-to-follow-results-of-two-georgia-runoff-elections/

16 https://www.independent.co.uk/news/world/americas/dr-anthony-fauci-coronavirus-pandemic-b1779336.html

17 https://www.statista.com/statistics/1103185/cumulative-coronavirus-covid19-cases-number-us-by-day/

18 Source: Centers for Disease Control and Prevention, Johns Hopkins CSSE, J.P. Morgan Asset Management. J.P Morgan - Guide to the Markets – U.S. Data are as of December 31, 2020.

19 https://www.fda.gov/emergency-preparedness-and-response/coronavirus-disease-2019-covid-19/covid-19-vaccines

20 https://www.bbc.com/news/uk-politics-55502781

21 https://www.cnn.com/2021/01/05/politics/loeffler-ossoff-perdue-warnock-runoff-results/index.html

Source (1)

Source (3)

"A lot contributed to the large market movements and swings in 2020. So, we thought we’d briefly recap some things that feel like they occurred much longer than just a few months ago."

Source (5)

Source (11)

"The Senate is controlled by Republicans, but they do not all agree on the matter as even Senate Majority Leader Mitch McConnel (R-Ky.) has asked he fellow Senators not to challenge."

Source (15)

Source (18)

Source (9)

"Anyone from the UK who wants to stay in most of the EU for more than 90 days in any 180-day period now needs a visa."

Market Commentary | November 2020

Fri, 04 Dec 2020 17:05:59 GMT

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

THE MARKET

Equity markets experienced a historic month in November as the S&P 500 finished up 10.75% and is now up 12.10% on the year.

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

1 https://www.investing.com/indices/

2 https://www.reuters.com/article/us-usa-stocks/sp-500-ends-down-after-rallying-to-best-november-ever-idUSKBN28A1MH

3 https://www.foxbusiness.com/markets/if-treasury-secretary-janet-yellen-make-history

4 https://www.cnbc.com/2020/12/01/world-stocks-outperform-the-us-in-bumper-november.html

5 https://covid.cdc.gov/covid-data-tracker/#trends_totalandratecases

6 https://www.nytimes.com/2020/12/02/world/europe/pfizer-coronavirus-vaccine-approved-uk.html

7 https://www.cnn.com/2020/11/30/health/covid-vaccine-questions-when/index.html

8 https://www.webmd.com/lung/news/20201201/cdc-votes-on-who-should-get-covid-vaccine-first

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

10 https://www.wsj.com/articles/weekly-jobless-claims-coronavirus-13-2-2020-11606950268

Source (1)

Source (5)

Source (9)

Market Commentary | October 2020

Tue, 03 Nov 2020 18:46:02 GMT

THE MARKET

November of 2020 will be one of the more pivotal and intense months this country has seen in quite some time.

At the end of the day, the election very much matters to citizens. It will shape the next four years of our lives. However, when it comes to your investment portfolio, the election should not change your long-term approach. A good plan is designed to help absorb short-term volatility and stay disciplined to your financial plan.

October started off positive for the markets until the selloff experienced during the last week of the month. The S&P 500 fell over 5.62% during the week ending on October 30 ^th . The NASDAQ fell 5.50% while the Dow Jones Industrial Average (DJIA) dropped nearly 6.50%. The S&P 500 finished the month of October down 2.66% and is now up just 2.77% on the year. The DJIA fell 4.52% during the month and is down 5.38% on the year. The technology heavy NASDAQ is still up 22.50% on the year, but it did fall 2.26% during the month. ¹ In the backdrop, virus cases are on the rise and the election is rapidly approaching. What does this all mean for the markets?

THE VIRUS, THE ELECTION, AND THE ECONOMY

As has been the case for much of 2020, the U.S. Presidential Election and Covid-19 made up most of the headlines in October. The last week of October saw a surge in new coronavirus cases per day as the United States neared the 100,000 mark on Friday, October 30 ^th . If the U.S. follows a similar path to Europe, it could be a long winter dealing with the virus. Cases have increased greatly in Europe this fall relative to the summer lows. The United Kingdom averaged 25,000 cases per day last week, which is up from the 1,000 per day it was experiencing in June. Similar story lines are seen in other large European countries such as Germany, Spain, and Italy to name a few. ² Daily cases in the United States fell to less than 25,000 in early September only to see them increase by 4x as the fall weather took hold. ³ Infection trends in upper Midwest states like Michigan, Ohio, and Illinois lead us to believe that the worst is yet to come.

While cases are up, it is not all doom and gloom as it relates to battling the virus. As you can see in the image to the right, even as cases increase dramatically, the death toll has been steady. One can theorize many things from the chart above regarding the severity of the virus, but the point remains that it is very contagious, and we still do need to take it seriously. For the economy’s sake, we need to continue to remain open in this social distancing type of economy, but to do so, we will need to continue taking the necessary precautions.

There are many emotions seen throughout the U.S. when it comes to the virus and the election. We are seeing very different views on both sides of the political aisle, and as eluded to above, also on both sides of the coronavirus aisle. We aren’t here to discuss the merits of either side, but simply to say that both the election and the virus will impact the economy and the markets moving forward.

Regarding the economy, U.S. real GDP fell at an annual rate of 31.4% in the second quarter. Most predicted that the third quarter would see a slight rebound, and we did. U.S. real GDP rose by 33.1% in the third quarter which topped analyst expectations of 32%. Note that the 33.1% increase is based on a smaller initial value than the 31.4% decrease in the second quarter. ⁵ That is to say, we did not recover all of the second quarter drop even though the third quarter number was larger. The virus is still here, and it is not going away anytime soon, but the economy has adapted. We expect single digit growth on a quarterly basis moving forward until a widely distributable vaccine is available which then could lead to a sizable quarterly increase in GDP. There are still many unknowns, but we seem to be on the path of recovery.

Regarding the markets, the virus and the election will certainly cause volatility in the near term. As virus cases rose in the last week of October and the potential for more lockdowns came into play, the market began to pull back. As election day approaches, the potential of a stimulus package coming anytime soon has decreased which did not aid the markets. And if there is a contested election, it is unlikely that we see another stimulus package passed in the next month. In a nutshell, the markets look to be volatile for the remainder of the year.

The election will create a period of market volatility; however, history would suggest that the markets will eventually stabilize regardless of the election outcome. Most analysts indicate that a Trump victory will be good news for stocks. One reason being that the Trump administration is likely to keep the corporate tax rate at 21%. Analysts at JP Morgan predict the S&P 500 could reach 3,900 with a Trump victory, which is over a 19% increase from the October 30 ^th closing price. ⁷ However, a Biden victory is now being seen as neutral for equities, and even bullish by some. A Biden victory could lead to less political friction. This would allow for quick and sizable stimulus packages that would be positive news for the markets. ⁸ Regardless of the election’s outcome, the dust will settle in the coming months and it is important to maintain your disciplined investment approach. Do not let the volatility in the coming months cause you to abandon your financial plan.

There are still many unknowns when it comes to the virus and its impact. We ultimately don’t know the long term affects of the virus on those that have been infected. It has not even been a year since the first person was diagnosed with the virus. And we don’t know the long-term impact of how this will shape our economy moving forward. However, we do know that we will get passed this moment in history. We have confidence that there will be a vaccine, and the economy will fully adapt. We will get through the election as both sides will eventually accept a result. Even with a contested election, a winner will be declared. This will lead to political certainty, and that certainty will eventually lead to stability in the markets. We should have a good idea of who wins the election sometime in the early hours of November 4 ^th , but it is likely to be contested and/or drawn out due to mail in ballots. There will be waves of news coming in throughout the week and possibly throughout the month regarding the election winner causing volatility in the markets. There will also be news regarding more virus cases, potential shutdowns, better treatment, and progress on a vaccine. The markets will react to the news. They will ebb and flow in the short term, however, history has taught us that timing the market is a nearly impossible proposition. Having a solid short- and long-term plan, while staying disciplined and levelheaded, will put you in the best position to weather the storm. Don’t panic. Stay the course.

CONCLUSION

It will be tough to watch your hard-earned money increase and decrease as the year wraps up. Double digits swings will be hard to ignore, but we encourage you to take the emotion out of investing and stay disciplined to your financial plan. Your portfolio should be invested based on your risk tolerance which will help manage the ebbs and flows we are sure to encounter. Money needed in the short term should be allocated to cash-like investments that will not be greatly affected by market movements. Money ear marked for the longer term will be able to ride the wave of volatility and come out of the other end on top. We recommend using the volatility caused by the election as an opportunity to rebalance. Make sure that you have the correct equity and fixed income allocations according to your risk tolerance heading into the new year. Stay disciplined to your financial plan, and don’t hesitate to reach out to your financial professional if you’d like to revisit your risk tolerance.

1 https://www.investing.com/indices/

2 https://seekingalpha.com/article/4383847-weekly-commentary-dangerous

3 https://www.wsj.com/articles/coronavirus-latest-news-09-08-2020-11599553301

4 https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=50c1433d-d270-4a45-9ff5-724838378d80

5 https://www.freep.com/story/money/business/michigan/2020/10/31/3rd-quarter-gdp-stock-markets-stimulus/6089809002/

6 Source: BEA, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of October 30, 2020

7 https://www.bloomberg.com/news/articles/2020-10-26/jpmorgan-sees-s-p-at-3-900-if-trump-wins-election-taking-stock

8 https://www.detroitnews.com/story/business/2020/10/05/clear-cut-biden-win-emerging-bull-case-stocks/3622088001/

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

Source (1)

Source (4)

Source (6)

"The election will create a period of market volatility; however, history would suggest that the markets will eventually stabilize regardless of the election outcome."

"Having a solid short- and long-term plan, while staying disciplined and levelheaded, will put you in the best position to weather the storm."

Source (9)

THE MARKET

November of 2020 will be one of the more pivotal and intense months this country has seen in quite some time.

THE VIRUS, THE ELECTION, AND THE ECONOMY

CONCLUSION

1 https://www.investing.com/indices/

2 https://seekingalpha.com/article/4383847-weekly-commentary-dangerous

3 https://www.wsj.com/articles/coronavirus-latest-news-09-08-2020-11599553301

4 https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=50c1433d-d270-4a45-9ff5-724838378d80

5 https://www.freep.com/story/money/business/michigan/2020/10/31/3rd-quarter-gdp-stock-markets-stimulus/6089809002/

6 Source: BEA, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of October 30, 2020

7 https://www.bloomberg.com/news/articles/2020-10-26/jpmorgan-sees-s-p-at-3-900-if-trump-wins-election-taking-stock

8 https://www.detroitnews.com/story/business/2020/10/05/clear-cut-biden-win-emerging-bull-case-stocks/3622088001/

9 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

Source (1)

Source (4)

Source (6)

"The election will create a period of market volatility; however, history would suggest that the markets will eventually stabilize regardless of the election outcome."

"Having a solid short- and long-term plan, while staying disciplined and levelheaded, will put you in the best position to weather the storm."

Source (9)

ChangePath Acquires Partnerverst Advisory Services

Thu, 08 Oct 2020 18:20:47 GMT

Registered Investment Advisory (RIA) firm focuses on expansion

LEAWOOD, Kan. (October 8, 2020) – ChangePath, a boutique RIA firm in the Kansas City area, announced today that it has acquired Santa Barbara, California‐based Partnervest Advisory Services. Established in 2001, Partnervest provides a comprehensive wealth management platform for financial advisors and their clients.

“Partnervest’s proven history and approach closely aligns with ChangePath’s goal to expand to serve more advisors and their clients,” said ChangePath president, Marty Pfannenstiel. “The firm, founded by Ken Hyman, president and CEO, has a philosophy based on deep advisor relationships backed by strong investment management expertise, and it’s a perfect complement to our business,” said Pfannenstiel.

Upon completion of the $700‐million transaction, ChangePath will have nearly $2 billion in assets under administration. “With the Partnervest acquisition, we are poised for continued growth and are more strongly positioned to expand offerings to our existing independent advisors and those considering a transition to the independent advisor space,” said Pfannenstiel.

“At Partnervest, we understand the power of partnership—it’s what we’ve built our firm on since 2001. Partnering with ChangePath is consistent with that ideology. We look forward to working together to bring ChangePath’s cutting‐edge technology and marketing expertise to our independent advisors’ practices. We are also keenly focused on growing ChangePath and the breadth of their independent advisors,” said Hyman.

About ChangePath

ChangePath is committed to advisors’ success. We provide quality investment solutions, innovative technology, practice‐management efficiencies, and marketing resources to independent advisors who operate their business with the highest integrity. We work with IARs, subadvisors and solicitors to take you where you want to go. ChangePath was the first TAMP to directly integrate fixed indexed annuity product statistics alongside investors’ proposed investment portfolios, helping to illustrate a more complete and comprehensive view. For more information, please visit changepath.com or call 888.798.2360 .

About Partnervest

Headquartered in Santa Barbara, California, Partnervest provides customized services to support the needs of fee-based advisors. Partnervest is solutions-oriented in helping our advisors grow their businesses according to their vision. For more information, please visit partnervest.com or call 888.991.9969

Market Commentary | September 2020

Tue, 06 Oct 2020 18:45:02 GMT

THE MARKET

The third quarter of 2020 has come to an end.

The Holidays are approaching, and after three short months we will turn the page to 2021. The United States’ markets took a step back in the month of September, but for the most part they are still in positive territory on the year. The S&P 500 finished the month of September down 3.8%, lowering its yearly number to a positive 5.6%. The technology heavy NASDAQ fell a bit more ending the month down 5.1% but is still up significantly on the year at 25.33%. The Dow Jones Industrial Average (DJIA) fell 2.18% for the month and is now down 0.91% on the year. All three indexes experienced a positive third quarter. ¹

THE ECONOMY AND MARKET OUTLOOK

As we mentioned earlier this year, the country will eventually start to adapt to a social distancing type of economy. After a bad first quarter, and a horrendous second quarter in terms of real GDP, third quarter projections are better than anticipated. As of October 1 ^st , the Federal Reserve Bank of Atlanta predicts a 34.6% increase for the third quarter. ³ America’s economy is healing as the social distancing economy gets ironed out and begins to normalize. Going out to eat feels relative normal again, albeit with social distancing and a mask. Travel is picking up, and multiple professional sports are underway. It is a different economy than the one we are accustomed to, but it is moving forward, nonetheless. As the economy has fallen and subsequently began to recover over the last few months, so has the market.

Leading the way for the market recovery in 2020 is large cap growth stocks, particularly in the United States as there was a flight to quality. This has led to both value and international stocks being undervalued. A logical person would conclude that it is now wise to lower our weights to U.S. growth stocks, and slightly increase them to both value and international stocks. We do think it is wise to rebalance back to your initial weights, however, we continue to emphasize a diversified portfolio. U.S. growth stocks have outperformed this year despite the negative news because of the large shift to eCommerce and the flight to quality. It’s possible that they continue to outperform throughout the remainder of the year if news surrounding the virus and its vaccine worsens. ⁴ On the other hand, as positive news is released pertaining to the virus, we could see both value stocks and international stocks recover with the economy. That may happen in the near term, or it may happen in 2021 or 2022. It is difficult to predict and that’s why we emphasize a globally diversified portfolio.

THE ELECTION AND THE VIRUS

As we have discussed for most of the year, today’s markets seem to be driven by the headlines. With technology and social media, our headline driven society now has quicker access to the news cycle, leading to increased market volatility in 2020 relative to most years. At the forefront of today’s news cycle, we have the 2020 presidential election and Covid-19. News surrounding either of these topics is likely to dictate the short-term market movements in the coming months. While this news will have immediate short-term effects, there are longer lasting consequences that we also need to consider.

After a sharp increase in the hospitalization rate from the virus to start the summer, that rate has continued to decline over the last three months as shown in the image to the right (Source 5).

The image to the right (Source 6) also shows the same trend regarding cases, but you’ll notice a slight uptick in September as students began going back to school. The blue lines are total cases per day, while the red line is a 7-day moving average.

One can see that the virus was becoming quite manageable throughout the summer, but also that we do need to maintain proper social distancing measures to keep it at bay. There are also fears as fall and winter weather approaches. Were the hot, summer months a reason for the decrease in cases over the last few months? Will cases and hospitalizations rise as colder weather arrives? There is no firm answer for these questions, but we do know that the market will react to news surrounding the virus accordingly. It will react to non-health related items as it pertains to the virus such as a stimulus package, and most importantly, it will react to news on the vaccine front. Vaccine news has been positive lately. AstraZeneca and the University of Oxford, the leader to produce a viable vaccine, have restarted trials after a brief pause. Trials were halted around the world after a participant in the United Kingdom became ill, but for the most part, they have restarted globally, however, they are still on hold in the United States. ⁷ Any positive news on a vaccine should help market performance, and as we get clearer signs on a timeframe for when a vaccine is widely distributable, markets could rally or establish a firmer floor. Either way, there will be volatility and it will likely be of the shorter-term variety. It’s important to stay disciplined to your investment approach.

Regarding the election, it is wise to know the consequences that come with either candidate winning. The two main issues being market volatility and taxes. We won’t get too much into the details of the individual tax plans, but it is wise to consult your financial professional to discuss the potential outcomes and their impact on your overall financial plan. With President Trump, we saw the Tax Cuts and Jobs Act (TCJA) in 2017. It’s possible for more changes, but at this point, we have an idea of what to expect from the Trump administration. On the flip side, we are still learning about the tax agenda from the Democrats should they regain power in Congress and the presidency. Michael Kitces, one of our favorite financial bloggers here at ChangePath, does a great job outlining Biden’s tax plan, but here a few points of emphasis to note. Biden’s tax plan would:

Increase the top ordinary income tax rate back to 39.6% - it is currently at 37%
Eliminate the qualified business income (QBI) tax deduction for those earning more than $400,000
Cap the value of itemized deductions at no more than 28% - affects those earners whose marginal tax bracket is over 28%
Quite important to advisers and their clients, it will implement a flat credit to replace deductions for contributions to retirement accounts
New and expanded personal income tax credits targeted at lower- and middle-income earners
Increase long-term capital gains rates back to ordinary income for those totaling over $1,000,000 (all ordinary income)
Limit 1031 exchanges
Eliminate the step-up in basis at death
Return to pre-TCJA federal estate and gift tax exclusion rules

Source (9)

*There is much more information available and there will be more details to iron out, but consult your financial professional and become educated on the topic of taxes as it relates to the election

Regardless of who wins the election, there is likely to be market volatility that follows. We won’t pick a political side or make a political prediction on who wins, but it is possible that the election could end up being contested. The last time we had a contested election was exactly 20 years ago due to the Florida recount when George W. Bush defeated Al Gore to become the 43 ^rd President of the United States. The Supreme Court awarded Bush the presidency on December 11 ^th , 2000, for a date of reference. ¹⁰ The S&P 500 fell just over 8% in 2000 during the month of November. For context, we were in the middle of the so-called “Dot-com” bubble that began in March/April of that year, but November did experience the largest monthly drop of 2000 and the second largest monthly drop during the bubble aside from September of 2001 after the attacks on September 11 ^th that month. ¹ The point? We are likely to experience market volatility, and it is likely to be heightened during a contested election. However, the odds do point to a clear winner of the election being produced by the end of election week. Even if it is contested, the public should have a very good idea which candidate will win. At the end of the day, we simply do not know how the election will unfold, but what we do know is that an election will produce more political certainty. We will eventually know the results regarding the presidency and which party controls Congress. That is a good thing for markets as political certainty bodes well relative to uncertainty. At the end of the day, volatility is to be expected. However, that doesn’t mean your long-term investment decisions should be based off how the market is going to perform in the next three months. Remember. Investing should be tied to an overall financial plan. A good plan accounts for many time intervals and your financial needs in each interval. This should include managing for short-term volatility.

CONCLUSION

Bringing it back full circle, we must emphasize the importance of staying disciplined to your investment objective and risk tolerance. Market volatility does not necessarily mean a large market decrease. It means that the market will experience frequent ebbs and flows. At some point in 2021, the dust will settle. The election will be behind us and the results will be accepted. The virus will have taken its toll on the world, but it is likely to be placed in the rearview. Remember, it is not about timing the market, but time in the market. We don’t recommend trying to sell out of your investments just prior to or just after the election. It is too difficult to come out on top. You may miss a market drop, but the odds are not in your favor when it comes to re-entering the market on time. The market could fall, it could rise, but we will end up at similar levels in the long run. Money that is exposed to market risk should be able to withstand the market volatility, and money that is needed in the near-term should be invested in more conservative cash equivalents. Reach out to your financial professional and revisit your financial plan. Make sure that your assets are invested to align with your financial needs and risk tolerance.

1 https://www.investing.com/indices/

2 https://www.massmutual.com/mmfunds/monthly_market_overview.pdf

3 https://www.frbatlanta.org/cqer/research/gdpnow

4 https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/week-ahead

5 https://gis.cdc.gov/grasp/COVIDNet/COVID19_3.html

6 https://covid.cdc.gov/covid-data-tracker/#trends_dailytrends

7 https://www.bloomberg.com/news/articles/2020-10-02/astrazeneca-resumes-vaccine-trial-in-japan-u-s-still-on-hold

8 https://apnews.com/hub/election-2020

9 https://www.kitces.com/blog/biden-tax-plan-cuts-democrat-proposal-capital-gains-396-increase-estate-exemption-retirement-credit/

10 https://nymag.com/intelligencer/2020/09/the-last-time-a-contested-election-tore-the-country-apart.html

11 https://www.juliusbaer.com/es/insights/artificial-intelligence/the-robots-keep-coming-finance-gets-techier/

Source (2)

"As of October 1st, the Federal Reserve Bank of Atlanta predicts a 34.6% increase for the third quarter.3"

"U.S. growth stocks have outperformed this year despite the negative news because of the large shift to eCommerce and the flight to quality."

Source (5)

Source (6)

Source (8)

"Biden's tax plan would... increase the top ordinary income tax rate back to 39.6% - it is currently at 37%"

"At the end of the day, we simply do not know how the election will unfold, but what we do know is that an election will produce more political certainty."

Market Commentary | August 2020

Tue, 08 Sep 2020 21:20:40 GMT

THE MARKET

Once again, the S&P 500 continued its rise this summer by finishing the month of August up 7.19%.

The index is now up 9.74% on the year, which pushed it above it’s previous high from February 19 ^th . The Dow Jones Industrial Average has also creeped into positive territory on the year as it is now up 1.30% in 2020 after an increase of 7.92% during the month of August. And not to be outdone, the NASDAQ continued its strong 2020 with a 9.70% increase in August leading to a 32.07% increase on the year. ¹

Source (2)

The main contributors to the positive performance focus on the central theme of 2020, Covid-19. As the graph shows below, daily cases have continued to decrease throughout August and daily deaths have begun to plateau.

Source (3)

Along with positive news on the number of cases and deaths, there seems to be optimism on the vaccine front. The vaccine being developed by Oxford University and AstraZeneca has started phase-3 of clinical trials in the United States, and there are reports that the United States may be moving towards getting an early vaccine, even before the entirety of the phase-3 trials is complete. ⁴ According to Dr. Anthony Fauci, clinical trials of a COVID-19 vaccine can be legitimately cut short and could allow a vaccine to become available more quickly than previously expected. ⁵ As we’ve discussed before, the market tends to price things in rather quickly, and we believe that the large uptick in the month of August indicates that investors believe the positive news coming out regarding a vaccine.

While the number of cases declining and the positivity surrounding a potential vaccine were large parts of the monthly market performance, there were other contributors as well. The second quarter earnings season has officially ended, and results were generally better than expected, albeit still poor. The S&P 500 Index companies reported an earnings per share decline of 31.8% for the quarter, in what was the largest year-over-year decline since the first quarter of 2009. Despite the poor near term results, investors responded positively to future guidance along with the record 84% of companies that have reported positive earnings surprises. The forward 12-month P/E ratio for the S&P 500 is now 22.8, well above both the 5- and 10-year average which has historically been right around 15. ²

Source (6)

The P/E ratio, or price-to-earnings ratio, is an important metric because it shows how much investors are willing to pay in order to participate in a company’s earnings. Broadly speaking, the P/E ratio is the dollar amount that an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. With 22.8 being the current P/E ratio of the S&P 500, we are looking at a double-edged sword. On one hand, a higher P/E ratio indicates that investors are willing to pay a higher share price today because of growth expectations in the future. However, on the other hand, a higher P/E ratio could indicate that a stock is overvalued as investors are paying too high of a price per dollar of that company’s earnings. Said differently, a low P/E ratio could either indicate that a stock has good value, or that investors don’t feel confident about a company’s future prospects.

Source (7)

While one can interpret the higher than average P/E ratio of the S&P 500 either way that they see fit, we view it as an opportunity to emphasize why having a disciplined and diversified investment approach is more relevant now than ever. Could the future growth potential of the companies leading the S&P 500 like Amazon, Google, and Microsoft, indicate that the current P/E ratio of the index is fair? It’s very possible. Its also possible that the market could be overvalued. As we discussed above, the market prices things in rather quickly, and sometimes before they happen.

Source (8)

The citizens of the United States will likely receive another stimulus package from the government sometime soon. As you may recall, the market increased significantly after the stimulus package during the 2007-2009 Financial Crisis even though it took some time. ⁹ More recently, the market rebounded much quicker after the first major coronavirus relief package was passed earlier this year. ¹⁰ While we don’t believe that another stimulus package will be agreed upon until after the election, we do think one is imminent, and we believe that the market feels the same way leading to the new highs set in August.

Circling back to our reasoning as to why being invested in a diversified portfolio makes sense, we look no further than the somewhat contradictory statements released by Deloitte and Goldman Sachs. According to a recent Deloitte survey, a stunning 84% of Fortune 500 CFOs say the US stock market is overvalued. That's up from the 55% who felt that way a quarter ago. Just 2% of finance chiefs say US stocks are undervalued. The findings add to the mounting evidence suggesting the slingshot rise in stocks created in part by the Federal Reserve may be overdone. Even as elevated levels of unemployment show that the real economy is still suffering from the pandemic, the S&P 500 has skyrocketed 55% since its March 23 lows. ¹¹ On the other hand, Goldman Sachs became the latest firm to increase its price target for the S&P 500, boosting its year-end target by 20%, from 3000 to 3600. The economy, they say, will rise much faster than the market expects next year, driven by the firm’s expectation of a coronavirus vaccine approved by the end of 2020 and widely distributed by the first half of 2021. ¹² To put this into context, the S&P 500 closed at 3,500 on August 31 ^st . ¹ So, Goldman Sachs see a potential 2.8% gain through the end of the year, while many of the S&P 500 company’s CFOs believe that the market is overvalued. Also, for the first time in a decade, those same CFOs are more bullish on the Chinese economy than they are on North America’s. ¹¹ To add on to that, the P/E ratio for global equity markets as of 6/30/2020 was 19.63. That is lower than the 30-year average which might indicate that global equity markets are underpriced. ¹³

CONCLUSION

While neither you nor I can predict which way the stock market will go, we do know that investing for the long term is a sound choice. However, we can’t guess which asset class is going to be on top one year and at the bottom the next year. To bring everything full circle, most of the comments above pertained to U.S. Large Cap equities. Are they overvalued? Have they peaked for 2020? What upside do they have for the remainder of the year? We simply don’t know, and it’s very possible that the next stimulus package could raise the index’s floor even higher. Possibly to the point where companies like Goldman Sachs increase their yearend estimates once again. On the other hand, many of the CFOs for those companies in the index seem to think China has more growth potential in the near term than the U.S. There has been a flight to quality this year amid the pandemic scare which is why the S&P 500 is setting records despite poor economic data. However, this has also led to potential opportunities in the other sub asset classes both domestically and internationally. We believe this is evidence as to why it is important to maintain a well-diversified portfolio relative to your risk tolerance with exposure to all asset classes. We will leave you with the image below, which shows how asset classes have performed both in the last few months and in the last few years. As you can see, what is leading the race one year, may easily be at the bottom the next year. The same can be said month over month, and that is why it is important to maintain the disciplined approach while not trying to time the market.

Source (14)

1 https://www.investing.com/indices/

2 https://www.massmutual.com/mmfunds/monthly_market_overview.pdf

3 https://www.ftportfolios.com/common/contentfileloader.aspx?contentguid=5b59dc42-4a47-413f-8eca-7d0151c6df5a

4 https://indianexpress.com/article/explained/september-2-coronavirus-vaccine-latest-covid-19-updates-6579651/

5 https://www.usatoday.com/story/news/health/2020/09/02/covid-19-news-australia-recession-new-york-schools-donald-trump/5682698002/

6 JP Morgan – Guide to the Markets – IBES, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Earnings data is based on 12-month forward estimates.

7 https://www.usatoday.com/story/money/columnist/2018/09/16/stock-market-2018-avoid-timing-returns/1303307002/

8 http://www.islandernews.com/coronavirus/no-deal-eleventh-meeting-between-gop-and-dems-yields-no-agreement-on-coronavirus-relief-package/article_06a7f91a-d8f1-11ea-88da-330a99414304.html

9 https://www.bloomberg.com/news/articles/2020-03-24/it-took-four-months-and-40-in-s-p-before-2008-stimulus-worked

10 https://www.nytimes.com/2020/04/29/business/stock-markets.html

11 https://www.cnn.com/2020/08/27/investing/stock-market-overvalued-deloitte-cfo/index.html

12 https://www.marketwatch.com/story/goldman-sachs-just-lifted-its-sp-500-price-target-heres-why-2020-08-17

13 https://siblisresearch.com/data/global-markets-pe/

14 https://www.callan.com/wp-content/uploads/2020/08/Callan-July-2020-Monthly-Periodic-Table.pdf

Market Commentary | July 2020

Fri, 07 Aug 2020 19:36:44 GMT

THE MARKET

Equity markets continued to recover in July as the S&P 500 has now entered back into positive territory for the year.

The Dow Jones Industrial Average (DJIA) was up 2.38% for the month but is still down 7.39% on the year. The NASDAQ composite is now up 19.76% on the year after finishing the month of July up 6.83%. ¹

If you’re wondering why there is a large discrepancy in performance among the indices, let’s revisit the image above. It is important to keep in mind that the S&P 500 is market cap weighted, meaning it is more greatly affected by larger companies, whereas the DJIA is price weighted and is only affected by stock price movements. While Microsoft and Apple represent the two largest companies in the DJIA, companies like Facebook, Alphabet, and Amazon are likely never to be included in the DJIA because of their high stock prices. ³ Each of those three companies has a very large market cap and their stock prices are up on the year: Amazon by over 30%. ⁴ The NASDAQ is also market cap weighted and is heavily weighted towards technology companies that have been less impacted by the virus leading to the index’s outperformance relative to the S&P 500 and the DJIA.

Even though the S&P 500 is now positive for the year, it is wise to temper expectations regarding market performance for the remainder of 2020. The yield on the 10-year treasury was 0.56% on August 3 ^rd , which is well below the 1.88% yield from earlier this year on January 2 ^nd . ⁵ The yield dropped below 1% for the first time in history in March of this year. ⁶ The low 10-year treasury yield means that investors are still looking for safety as uncertainty remains in the equity markets. To be clear, this isn’t a doom and gloom expectation for the market in the short term, just one that recommends having reasonable expectations. There will be volatility and there is room for a market pull back. Be prepared for the market volatility and understand why you have a well thought out financial plan to help guide you through the ebbs and flows to come.

THE VIRUS AND THE ECONOMY

While the headlines in July varied from the weather to the election to social issues, the country and our economy are both still centered around Covid-19. The virus seems to be getting worse in July after a decrease in new cases throughout May. As you can see in the image below, cases began to taper off in May before steadily increasing in June and July. Some would attribute that to the increase in tests being completed. However, the orange line shows positive cases as a percentage of tests being completed, and you can see that the line begins to increase in June and July.

While people can interpret the virus numbers in different ways and they can view the virus on different ends of the threat spectrum, we cannot deny that the virus and charts like these have a direct effect on the economy. As long as the virus is in the news and is still some sort of a threat to citizens, it will impact our economy, and the U.S. GDP number in the second quarter reflects that.

Though the second quarter economic numbers weren’t as bad as initially feared, the United States suffered its biggest quarterly GDP decrease in history. U.S. GDP fell 32.9% in the months from April through June which comes on the heels of a 5% drop in the first quarter. To put those numbers into perspective, the worst decrease in GDP during the 2008 financial crisis was negative 8.4% in the fourth quarter of 2008. The largest drop before that was 10% in the first quarter of 1958. As stated by Peter Boockvar, Chief Investment Officer of Bleakley Advisory Group, “Bottom line, the numbers of course are alarming but all self-inflicted with about half the quarter reflecting almost full shutdown and the other half the slow reopening. That said, it does reflect the hole out of which we now need to climb out of as we rebound in Q3 and Q4.” ⁸

As of August 3 ^rd , U.S. GDP is projected to increase by nearly 20% in the third quarter. ⁹ That is a large number, but not near as large as it may seem. When you fall by over 30%, the 20% bounce back is based on your newly established lower level. For example, if you fall from 100 down to 70, you have had a 30% drop. Now, follow up that drop with 20% growth. The 20% growth is based on the level of 70, not on 100. In this example, a 20% increase would result in a new level of 84, which is a 20% increase from 70. You simply cannot just subtract 30 and then add 20. It will take much longer to get back to pre-virus levels of GDP than one may initially think, but we are hopeful to get there by the end of 2021. ¹⁰ However, there are concerns with our ability to recover at a high enough pace to achieve that goal.

In the image to the right, you can see that activity did start to pick up in the beginning of May but that it has slowly evened out and we aren’t anywhere near pre-virus levels for much of the mobility data. Mortgage applications are above the initial level simply because they will even out over time. People who were planning to purchase a home in March and April simply put it off until the summer months, and those planning to purchase in the summer are still planning to in that timeframe. Thus, why mortgage applications are above their pre-virus levels. Credit and debit card transactions have slowly come back due to e-commerce, but they are still firmly below pre-virus levels. The bottom four lines represent the mobility data of our economy regarding travel, hotel stays, and dining out. As the above image shows, the economy has begun to flatten out, and our concern now, is how to prevent it from dropping again.

That prevention starts with containing the virus. The global consensus seems to be that things will not go back to “normal” until there is a widely distributable vaccine. ¹⁰ There are many questions regarding the effectiveness of a vaccine, but for the purpose of this reading, let’s pretend that a widely distributable vaccine solves our issue. Researchers are racing to produce a viable vaccine that is deemed to be widely distributable hopefully in the second half of 2021. ¹²

With a slightly better grasp on the virus now than in March, the economy has started to open, but for how long? Businesses are partially open, but there are already signs of restrictions being put back in place. Schools are delaying the start to the school year or offering online classes. College campuses are closing. Professional sports are being postponed and are in jeopardy of cancelation. No matter what your perspective is on the matter, the virus is still preventing our economy from fully opening and the markets will be looking for another stimulus package to bridge the gap until after the election. As we’ve mentioned before, the stimulus packages are designed to keep the economy in suspended animation until things can go back to normal, which we established is likely post-vaccine and still many months away. We likely don’t need something to the extent of the previous packages passed, but we will still be looking to the government for aid.

As Chiefs Global Strategist at J.P. Morgan, Dr. David Kelly states, “One significant difference between the recession of 2020 and recessions in previous decades has been the willingness of the Federal Government to provide very substantial support to the economy. The four coronavirus relief bills passed so far have had a combined price tag of $2.4 trillion. We expect, despite a current stalemate, that Congress and the Administration will agree to a further bill in the first half of August, adding perhaps another $1.5 trillion to the total. Moreover, after the election an additional bill will likely be needed to tide the economy over until the widespread distribution of a vaccine.” ¹⁰

Our economy is healing, and we are becoming used to this social distancing type of economy, but we still very much need to monitor the virus and our country’s fiscal response to the economic issues at hand.

MARKET OUTLOOK

To come full circle, we are in a headline driven society and this year will continue to be volatile for the markets. In what is usually a quiet month for the markets as the summer ends and school years begin, August will likely experience more sharp short-term movements than normal. There will be announcements about new therapeutic drugs and progress on a vaccine. Announcements regarding school years and sports of all levels. The November Presidential Election gets closer every day as there seems to be a larger political divide in this country than most can remember. These issues are evidence that it is likely to be a volatile year.

It is important to stay disciplined according to your financial plans, and not panic because of short term market movements regarding one of the above headlines. Yes, there will be lasting consequences depending on which party wins the presidency, and it is important to understand the policies that each side brings to the table, but your long term financial plan is put in place because of these issues. We still recommend maintaining a balanced and diversified portfolio according to your risk tolerance. Don’t hesitate to reach out so that we can revisit your financial plan in order to make sure that you have your assets invested accordingly. Some of your assets will be positioned to take advantage of long term market growth as they will be able to withstand the volatility, while others will be positioned for safety in order to ensure that you have the necessary income to achieve your goals.

1 https://www.investing.com/indices/

2 https://www.koyfin.com/research/2018/07/23/large-cap-tech-is-driving-market-returns-but-small-cap-tech-may-outperform-going-forward/

3 https://www.cnbc.com/2018/06/20/heres-why-google-and-amazon-probably-will-never-be-included-in-the-dow.html

4 https://finance.yahoo.com/quote/AMZN/

5 https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

6 https://www.cnn.com/2020/03/03/investing/10-year-treasury-yield-record-low/index.html

7 https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=401e10ae-8d93-4576-bf9e-dad298f0e060

8 https://www.cnbc.com/2020/07/30/us-gdp-q2-2020-first-reading.html

9 https://www.frbatlanta.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

10 https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/week-ahead

11 https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/investor-questions

12 https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html

Source (2)

"Even though the S&P 500 is now positive for the year, it is wise to temper expectations regarding market performance for the remainder of 2020."

Source (7)

"As of August 3rd, U.S. GDP is projected to increase by nearly 20% in the third quarter."

Source (11)

" As we’ve mentioned before, the stimulus packages are designed to keep the economy in suspended animation until things can go back to normal, which we established is likely post-vaccine and still many months away."

"The four coronavirus relief bills passed so far have had a combined price tag of $2.4 trillion."

"Don’t hesitate to reach out so that we can revisit your financial plan in order to make sure that you have your assets invested accordingly."

Market Commentary | June 2020

Wed, 08 Jul 2020 18:08:21 GMT

THE MARKET

It was a very strong quarter for the equity markets as the S&P 500 rose almost 20%. The index ended the month up 1.84% and is now down just over 4% on the year.

The Dow Jones Industrial Average (DJIA) finished the month up 1.69%. It finished the second quarter up 17.77% and is now down 9.55% on the year. The NASDAQ composite performed the best of the three indexes as it was up 5.99% for the month of June, was up an astounding 30.63% in the second quarter, and is now up 12.11% on the year. 1 The tech-heavy NASDAQ is enjoying its best first half of the year since 1983 relative to the other two indexes while the gap between the S&P 500 and the DJIA is its widest since 2002. 2 Much of this can be attributed to just a handful of stocks like Apple, Microsoft, Amazon, Google, and Facebook as only two of these companies are in the price weighted DJIA. The same five companies represent 20% of the S&P 500 and an even larger percentage of the NASDAQ as both indexes are market cap weighted. 3

According to David Lebovitz of J.P. Morgan 5 , much of the positive quarter for the equity markets can be attributed to three things: a slowdown in coronavirus cases, fiscal and monetary policy help, and the general consensus that company earnings will withstand the virus and come out on the other side in 2021 closer to pre-virus levels. The sharp initial market drop due to the virus followed by the policy driven market recovery has started to show the V-shape recovery that some predicted for the equity markets. The S&P 500 suffered a swift 34% fall in February and March, followed by a 40% recovery over the next 3 months, faster than the prior four bear markets, including the 39% rebound that occurred in a three month period after the 2008 financial crisis. 6

THE ECONOMY AND THE VIRUS

While the V-shaped market recovery is a welcome sign, the economic recovery is starting to take a shape more resembling the swoosh of a Nike logo. Between February and April, the United States lost over 20 million jobs 7 and real GDP fell by 5% annualized in the first quarter. 8 Some analysts then predicted a 50% drop in U.S. real GDP in the second quarter. 9 The beginning of the shape was sharp and easy to identify. Then, as the economy slowly began to reopen, unemployment started to fall, and GDP estimates slowly started to get better. Unemployment peaked at 14.7% in April, then fell to 13.3% in May, and then 11.1% in June. 10 Second quarter U.S. real GDP estimates have now gone from negative 50% to just over negative 35%. 11 Real signs that a recovery has started. However, the improvement in these numbers is largely attributed to the economy reopening because of a slowdown in coronavirus cases.

The coronavirus is likely to tell the tale of the third quarter just as it did the previous one. After initial lockdown measures began in March and many Americans began to quarantine, we started to see a significant slowdown in cases. The idea was to flatten the curve and by all accounts, it was achieved. Many areas started to reopen in May with the vast majority at least partially open by Memorial Day Weekend at the end of the month. This slight reopening led to positive signs for the economy, but as more Americans threw caution to the wind regarding social distancing measures and other safety protocols, cases began to rise in June, and fatalities increased shortly after.

Dr. Anthony Fauci has stated that we could get as high as 100,000 new cases a day. 13 The good news is that the fatality rate appears to be falling possibly due to better treatments, but cases and fatality numbers likely will continue to ebb and flow until there is a vaccine. Most people still believe that a widely distributable vaccine will be available some time in 2021, but until then, the virus will affect everything that is going on in the United States. 14

The left side of the V-shaped recovery was easy to see and the right side started to form. The virus had other ideas in mind and put a stall in the right side of the recovery elongating the shape into the previously mentioned Nike swoosh logo. We will eventually get to a post-virus economy, but it will take time. We anticipate that the right side of the recovery will continue as GDP steadily rises back to pre-virus levels and unemployment steadily falls. The country will likely still feel in a recession until unemployment drops below double digits. This may not occur until 2021 as the service industry continues to operate under capacity and many other Americans that have been furloughed will realize their unemployment and begin looking for work. U.S. real GDP is predicted to be up 25% in the third quarter which is a significant gain. 15 But when you compare that with the over 40% drop that occurred in the first half of the year, it doesn’t look as significant. We believe GDP is likely to rise steadily at a much lower rate each quarter moving forward through most of 2021 before we get back to pre-virus levels. Think of it like a bouncing ball. The first bounce is extraordinary, but when you realize where you dropped it from, it doesn’t seem all that high. Each subsequent bounce is likely to be smaller and smaller, but eventually all of the bounces added up will equal the distance of the first drop.

The virus did a good job dictating the initial drop while fiscal and monetary policy helped trigger the first bounce. Regarding fiscal policy, four packages have been passed with a fifth one likely to come later in the third quarter. 17 There are questions surrounding the extra $600 a week in unemployment benefits. That could possibly get lowered or eliminated entirely. State and local governments will need funding, and more payroll tax cuts could benefit businesses. We may even see more stimulus checks issued.

The country’s deficit will continue to increase with another package, and it is possible that we see a sixth package postelection later in the year. The Federal Reserve did their job regarding monetary policy and brought the rates down to a target of 0.00 – 0.25%. The Fed continues to be dovish and will likely keep rates the same for the foreseeable future as they stand ready and willing to help keep the economy afloat while we continue to battle the virus. 19

As Dr. David Kelly of J.P Morgan stated, the virus will be like that of a rolling wave .20 Cases will go up, people will stay inside, and the economy will be hindered. When cases begin fall, the public will head back outside, and the economy will receive a boost. This wave will continue until there is a vaccine, but because we’ve adapted to this social distancing economy, we will enable GDP to steadily grow as we work towards a post-virus world.

BREXIT

On June 12th, the government of the United Kingdom announced that they will not be seeking an extension by the June 30th deadline. This extension would extend the Brexit transitionary period between the United Kingdom and the European Union which is set to end on December 31st, 2020. The two sides hope to end a Brexit deadlock regarding a trade deal and will begin meeting weekly from June 29th through the end of July. Their previous discussions only occurred every three weeks. If a trade deal between the two parties is not agreed upon by the end of 2020, future trade will be conducted under the World Trade Organization’s rules. 21 This is a broader set of rules that is likely less favorable to both countries and could cause trade disruptions and an increase in trade costs. The goal for a trade deal to be reached is as soon as possible, but many believe that crunch time will occur in September.

CHINA

Tensions over the coronavirus pandemic combined with a global recession placed strain on the relationship between the United States and China that was only increased by the issues that arose regarding Hong Kong last month. The Phase One trade deal that was signed in January has been put on hold. Recently the U.S. Chamber of Commerce and many trade associations have urged officials from the two countries to honor and implement the Phase One deal. Implementing Phase One will allow the countries to work towards Phase Two which will focus on issues such as subsidies, cybersecurity, and digital trade. 22 However, with the U.S. Presidential Election looming, an agreement is not likely to be made soon.

MARKET OUTLOOK

As we previously mentioned, much of the second quarter market rally can be attributed to three things, but each one of those are going to be tested as we enter the second half of the year. As shown in a previous graph, the slowdown in coronavirus cases seems to be no more. The rolling wave of cases is likely to affect the ebbs and flows of the equity markets. Fiscal policy has another hurdle to pass in the second half of the year as a fifth and possibly sixth stimulus package may need to be agreed upon, and the upcoming earnings season may cause a stir in equity markets. As of now, investors have seemingly looked passed this year and towards 2021 in terms of company earnings possibly hoping that the second half of 2021 looks more like pre-virus levels. This upcoming earnings season will likely have some very poor numbers that may or may not shock investors. These issues will likely cause a volatile month and quarter.

Economic and market fundamentals also do not warrant current price levels. Monetary and fiscal policy were able to trigger the market recovery and keep it afloat as we were able to avoid an illiquidity scare. But at some point, either the fundamentals have to catch up to equity prices or the market has to pull back. This is another area of uncertainty. If fundamentals catch up, then we are smart to hold onto equities. If the market pulls back, then potentially one could be better off with a larger allocation to fixed income. Combining all of the above-mentioned issues with the upcoming U.S. Presidential Election and we are looking at a volatile equity market for the remainder of 2021.

It is wise to maintain a disciplined investment approach with a well-diversified portfolio. One with exposure to both equities and fixed income. One with exposure to sectors of the equity market such as technology, utilities, and healthcare as they have held up nicely so far this year, but also with exposure to financials in order to participate in more of the recovery. Exposure to both growth and value is important as there is uncertainty around future inflation. Volatility and uncertainty lie ahead, so be prepared for the ebbs and flows of the market. As always, maintain a disciplined investment approach based on risk tolerance. Remember, it is not about timing the market, but it is about time in the market.

1 https://www.investing.com/indices/

2 https://www.marketwatch.com/story/the-nasdaq-isnt-just-beating-the-dow-and-sp-500-its-having-one-of-its-best-first-halves-ever-against-its-stock-market-

peers-2020-06-29

3 https://www.cnn.com/2020/02/10/investing/sp-500-tech-stocks/index.html

4 https://www.koyfin.com/research/2018/07/23/large-cap-tech-is-driving-market-returns-but-small-cap-tech-may-outperform-going-forward/

5 https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/what-does-a-second-wave-mean-for-equity-markets

6 https://www-1012.aig.com/pdf/market-perspective/market-perspective.pdf

7 https://www.cnbc.com/2020/05/08/jobs-report-april-2020.html

8 https://www.cfo.com/the-economy/2020/05/u-s-gdp-contracts-5-in-q1-as-corporate-consumer-spending-plunge/

9 https://www.cnbc.com/2020/06/02/gdp-is-now-projected-to-fall-nearly-53percent-in-the-second-quarter-according-to-a-fed-gauge.html

10 https://fortune.com/2020/07/02/unemployment-jobless-rate-june-coronavirus-pandemic-reopening-jobs/

11 https://www.frbatlanta.org/cqer/research/gdpnow

12 Johns Hopkins CSSE, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of June 30, 2020.

13 https://www.cnbc.com/2020/06/30/fauci-says-us-coronavirus-outbreak-is-going-to-be-very-disturbing-could-top-100000-cases-a-day.html

14 https://www.cnn.com/2020/06/03/health/fauci-coronavirus-vaccine-2021/index.html

15 https://www.pymnts.com/economy/2020/goldman-sachs-drops-gdp-estimate-expects-lower-growth-this-quarter/

16 https://physics.stackexchange.com/questions/256468/model-formula-for-bouncing-ball

17 https://www.forbes.com/sites/ryanguina/2020/07/03/next-stimulus-bill-may-include-stimulus-checks-back-to-work-bonuses/#6f42d871303c

18 Source: CBO, J.P. Morgan Asset Management. JPMAM estimates include costs of CPRSA, FFCR, CARES and PPPHCE Acts, signed into law on March 6, 18 and 27 and April 24 as estimated by CBO. Charts on right add impacts of these acts, interest cost of additional debt, an assumed extra $1 trillion in further acts in 2020 and 2021 and recession impacts on revenues, spending and GDP. Congressional Budget Office (CBO) March 2020 Baseline Budget Forecast. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Guide to the Markets – U.S. Data are as of June 30, 2020.

19 https://www.marketwatch.com/story/stocks-turn-positive-as-fed-stays-dovish-2020-06-10

20 h ttps://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/library/media/snapshot-of-the-economic-and-market-update-for-the-third-quarter-

of-2020-1383653688128

21 https://www.ft.com/content/fa647608-53b4-40ba-9443-6df25f6418f8

22 https://www.agriculture.com/markets/newswire/update-2-us-trade-groups-urge-china-to-increase-purchases-of-us-goods-services

23 https://www.aegonassetmanagement.com/us/thought-leadership/blog/asset-class-research/2019-high-yield-market-outlook/

Source (4)

Source (6)

Source (12)

Source (18)

"On June 12th, the government of the United Kingdom announced that they will not be seeking an extension by the June 30th deadline."

"The phase one trade deal that was signed in January has been put on hold."

"If fundamentals catch up, then we are smart to hold onto equities. If the market pulls back, then potentially one could be better off with a larger allocation to fixed income. "

Market Commentary | May 2020

Fri, 05 Jun 2020 18:23:33 GMT

THE MARKET

Equities continued to climb in the month of May as both domestic and international equities finished the month in positive territory.

The S&P 500 ended the month up 4.76% and it is down 4.97% on the year. The index is now down just 10% off its peak in February. The Dow Jones Industrial Average (DJIA) was up 4.66% for the month of May and is down 10.06% on the year. The technology heavy NASDAQ Composite was up 6.89% on the month and is up 6.22% on the year. 1 As equities rose, volatility started to fall. The average closing value of the VIX (CBOE Volatility Index) in April was 41.45 and that fell to 30.9 in May. 2 While volatility is coming down, the May number for the VIX is still higher than its 30-year average of 19.33, and we do expect that volatility to continue throughout the remainder of the year. In times of volatility, it is vital that we maintain a disciplined investment approach according to our risk tolerance.

THE VIRUS AND THE ECONOMY

COVID-19 has dictated the headlines for much of March, April, and May. While the total numbers of those infected and those that have died from the virus both continue to rise in the United States, they are slowing down. The first chart to the right with the blue lines shows the number of new COVID-19 cases reported each day in the U.S. since the beginning of the outbreak. The second chart with the red lines shows the number of reported coronavirus deaths per day in the U.S. Both charts are as of June 2nd, 2020.

Part of the reason that the U.S. hasn’t had as significant of a decline as seen is other countries is because the United States has caught up to the rest of the world in terms of testing. 5 New York and New Jersey, which had some of the highest infection rates in the U.S., have now seen their rates converge to the rest of the country which has been stable for some time now. 6 The threat of the virus is still very real and there is still a lot that we don’t know regarding COVID-19. Is there a possibility of a second wave? Does humidity help stop transmission of the virus? While there is speculation regarding the answer to both of those questions along with many others, at the end of the day we don’t have a concrete answer. Social distancing measures are likely to remain as the economy slowly begins to reopen in phases. There continues to be progress on a vaccine, but once again, no firm timetable. The goal at the beginning of the lockdown was to flatten the disease curve and based on the two charts from the previous page most would say that we have achieved that goal. Government officials likely understand that the virus remains a threat and that there is risk in reopening the economy, but they seem to have determined that we are better equipped to handle the virus now than we were in March and we can now assume those risks.

As the stay at home orders began ending around the United States, signs of an economic recovery started to emerge. We are already beginning to see signs of normalcy returning just 2-3 months after the pandemic began. First-time claims for unemployment fell to 2. 1 million for the week ending on May 22nd. While a very large number of Americans remain unemployed, that is the lowest weekly number since the start of the crisis. The most positive sign regarding unemployment is continuing claims, those who have been collecting unemployment for at least two weeks. That number fell to just over 21 million, which is a sharp decrease of nearly 4 million from the previous week. 7 it is a sign that Americans are beginning to go back to work as the economy reopens. The chart to the right from JP Morgan shows economic activity beginning to pick up throughout the month of May. As you can see, we still aren’t close to pre-virus levels which are shown on the y-axis to the left, but we are greatly improving since the bottom in late March/early April.

CHINA

On the last business day of May, United States President Donald Trump announced that he was revoking Hong Kong’s preferential treatment as a separate customs and travel territory from the rest of China. U.S. officials claim that the city can no longer be said to have a high degree of autonomy from Beijing after China imposed a new security law on the city. However, President Trump did not renounce the signed trade deal with China that some investors feared. 11 Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods including soybeans as Beijing evaluates the ongoing escalation of tensions with the U.S. over Hong Kong. 12 Relations between the two countries are tense and the cancellation of the trade deal is still a possibility. As the election gets closer, a hard stance on China may be necessary to earn voters, and the markets will continue to monitor.

MARKET OUTLOOK

While we likely haven’t seen the worst of the economic data yet, the stock market continued to rally as it shifted its focus to the easing of lockdown measures around the world and the affect that would have on economies. It looks as though equity markets were a bit too bearish at the start of the pandemic. As we’ve stated before, the stock market often bottoms before manifestations of a crisis start to improve, and sometimes it even bottoms as those indicators are still getting worse.

While we do believe that there is still room for a market pull back as we stated last month, it may not be as large as many initially thought. Goldman Sachs has now lowered its expectations for how steep that sell off could be. Last month, Goldman Sachs warned of a near 20% pullback that saw a price target for the S&P 500 of 2,400. They have since increased that downside target to 2,750 with a potential upside target of 3,200. Regarding the recent rally, Goldman Sachs analyst David Kostin writes, “The powerful rebound means our previous three-month target of 2,400 is unlikely to be realized. Monetary- and fiscal-policy support limit likely downside to roughly 10%,” with the short-term outlook for the index to be “neutral at best.” 13

To build off what we said in the first paragraph of this month’s commentary and also what we mentioned in last month’s commentary, the S&P 500 is 10% down from its peak in February of this year and the index has also never failed to reach a previous high. 1 While the short-term outlook for the index may be murky, it’s important to look at things from a long-term perspective and realize that the index will likely recover that 10% over time.

1 https://www.investing.com/indices/major-indices

2 http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index/vix-historical-data

3 https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/cases-in-us.html

4 https://www.nbcnews.com/health/health-news/coronavirus-deaths-united-states-each-day-2020-n1177936

5 https://www.bbc.com/news/world-us-canada-52771783

6 https://www.jpmorgan.com/jpmpdf/1320748598373.pdf – Johns Hopkins University, IMF, JPMAM. June 02, 2020

7 https://www.cnbc.com/2020/05/28/weekly-jobless-claims.html

8 hhttps://www.jpmorgan.com/jpmpdf/1320748600038.pdf – WWPA, EIA, AISI, EEI, AAR, Redbook, Census Bureau, TSA.gov, Apple, Smith Travel, MBA, Goggle, AirDNA,

JPMAM. June 03.2020

9 https://www.frbatlanta.org/cqer/research/gdpnow#:

10 https://www.cnn.com/2020/06/03/economy/may-jobs-report-preview/index.html

11 https://www.bloomberg.com/news/articles/2020-06-01/china-halts-some-u-s-farm-imports-threatening-trade-deal

12 https://www.thestreet.com/investing/goldman-sachs-sees-less-of-a-drop-in-sp-500-index

13 https://fortune.com/2020/06/03/us-hong-kong-special-trade-status-revoke/

Source (1)

Source (3)

Source (4)

Source (8)

"Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods including soybeans as Beijing evaluates the ongoing escalation of tensions with the U.S. over Hong Kong."

"Regarding the recent rally, Goldman Sachs analyst David Kostin writes, “The powerful rebound means our previous three-month target of 2,400 is unlikely to be realized."

Market Commentary | April 2020

Fri, 08 May 2020 19:44:44 GMT

THE MARKET

The COVID-19 pandemic stunned the stock market in March, but it rebounded nicely in April.

The S&P 500 experienced its best month since 1987 as it finished April up 12.7% and it is now down 9.9% for the year.1 The Dow Jones Industrial Average was up 11.1% in April and is now down 14.7% on the year. The NASDAQ Composite finished April up 15.5% and is down just under 1% on the year.2 As the public and the markets continue to get more comfortable with our current situation, volatility began to come down from its peak levels. The standard volatility index, the VIX, went from over 80 at one point in March down to just over 34 to end April. The trailing 12-month average of the VIX sits just over 21, and we expect volatility to continue in the near term.2 Small Cap stocks led the equity markets in April as they were up 13.5%, but they are still significantly down for the year at negative 20.5%.

Today’s stock market will continue to be event driven with continued uncertainty surrounding the impacts of the virus. The strong monthly performance numbers came alongside a deterioration in earnings expectations. As a result, equities are seen as fairly expensive again. With a surge in fixed income buying combined with global easing in monetary policy, yields are being pushed to record lows. Because of this, it is important to focus on quality when it comes to investing in both equities and fixed income. Long term, equities are still at a discount relative to their February highs, and traditional fixed income is not providing the yields that many have become accustomed to receiving. However, it is important to have exposure to quality fixed income such as treasuries and higher quality corporate bonds for protection in your portfolio. It is too late to become overly defensive, and too premature to become overly aggressive. It is important to have a quality balanced and diversified portfolio based on your risk tolerance.

THE ECONOMY

While the market experienced its best month since 1987, the economy suffered its first quarterly drop in GDP since 2014 and its largest drop since 2008. First quarter United States GDP was down 4.8% in annualized terms (1.2% in absolute terms).4 This is just the tip of the iceberg as that number includes January, February, and the first half of March which were all okay numbers before the roof caved in the second half of March. Second quarter GDP numbers are predicted to be negative 25% or more on an annualized basis (6.25% or more in absolute terms).5 That is between a 7-8% drop in GDP in absolute terms during the first two quarters of 2020. To put that into perspective, the absolute decline in GDP during the Great Financial Crisis of 2007-2009 was 4.3%.6 The unemployment rate will likely continue to rise and is projected to average close to 14% in the second quarter.7 This is clear evidence that we are officially in the thick of a recession. A recession is defined as two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP) in conjunction with other monthly indicators such as rising unemployment.

The first part of this recession is now shaped, and it was quite the plunge. Does the second part of the recession result in a V shape, a U shape, or something resembling the swoosh of a Nike logo? The recent market performance in the month of April indicates the thought of a V-shaped recovery, but we do think the market may be too optimistic in visualizing a V as we believe a U-shaped recovery is more likely. The timing and formation of the shape is likely a function of the disease. It seems more and more likely that we will end social distancing protocols too aggressively or prematurely and it is also possible that we could see a resurgence of the virus later in the year which will not be a good sign for the economy. We aren’t in the business of speculating the dates of reopening of the economy, but it is likely to come in stages with the final stage occurring after a vaccine.

We are currently in The Great Lockdown as coined by the IMF which has led to the worst economic downturn since the Great Depression.8 This is the phase where many of us are under quarantine and experiencing stay at home orders. We are slowly starting to enter the next phase where things begin to reopen gradually and some stay at home orders have been lifted. However, it is not about what the government allows businesses to do, but it is about what the public will do. Will they go to restaurants with the threat of the virus still looming? Some will, but others are not going to want to be served by someone with a facemask on. Will the public travel for business or vacation? Some will, but imagine how uneasy the cabin of an airplane will be when one passenger sneezes a few times. The point is people will still be cautious. We have to look at things that can be done with a bit of social distancing. We can still buy a house and keep our distance from the realtor. We can still buy a car and keep our distance from the salesperson. We can open factories with social distancing measures in place and even some office buildings. But it is highly unlikely that your city’s restaurant and bar scene will be full steam ahead. We probably aren’t going to have large gatherings for concerts and sporting events. We will start to adapt to a social distancing economy as we begin to enter the next phase. A phase of healing. A phase hallmarked by providing better treatments and have better protocols in place to deal with the virus. Eventually we will have a tested and distributable vaccine that will take weeks or possibly months to fully implement. And finally, we will enter the post virus phase hopefully sometime in 2021 that will allow the economy to begin roaring back.

This will be an unusual economic recession and an unusual recovery. But this recession is different from most others in how quickly we realized that we are in one. It often takes some time. We didn’t realize that we were in the Great Financial Crisis of 2007-2009 until the second half of 2008. We also know what caused our current recession. Short answer, the virus. We do not have to speculate about other causes. And we have a good idea of what the other side of this recession will look like. We believe that there will be jobs waiting for many of the unemployed and that the economy will come back strong after fears regarding the virus have subsided. We just don’t know how long we will hover at the bottom before we come out on the right side. We don’t know if the virus will come back surging after we relax social distancing measures. We don’t know if the summer heat will hinder the virus. And we don’t know when a vaccine will be widely distributable. These questions all lead to uncertainty in the length of this economic recession.

UNCERTAINTY

The market does not like uncertainty. It doesn’t mind negative news with visibility because at least it is certain, but there is complete uncertainty in the market right now, and we do believe that the market has gotten ahead of itself. It might not retest the lows experienced in March, but it is too optimistic of a V-shaped recovery at this point. We are likely looking at a U-shaped recovery, especially if we do see a surge in cases as social distancing measures are relaxed.

There is no denying that April’s market performance was tremendous, however, it came during a contraction of earnings expectations for most companies. When looking at the market from a valuation standpoint, stocks are quite expensive. The S&P 500 forward price-to-earnings ratios are at levels similar to the dotcom bubble in 2000-2001.10 There is room for another pullback at some point this year.

The market rally in late March and April was in large part due to the stimulus from the CARES Act. There was a liquidity issue in the market, and the Fed replenished that liquidity. The Fed is building a bridge. It is writing off the second quarter and looking to the other side of the bridge in the third or fourth quarter when traditional economic fundamentals can start to kick back in and influence the market. However, we don’t know if the bridge is strong enough or if it will be long enough. This uncertainty and lack of visibility is creating the volatility. It is unlikely that we head into a runaway bull market this summer while millions of people are not working and while we are losing money in terms of GDP.

As we’ve previously discussed, the first large market decline during the Great Financial Crisis of 2007-2009 occurred in October of 2008. We then experienced some government stimulus and the market rallied before hitting its bottom in January of 2009.11 Something similar is possible again. A bear market rally is a sharp increase in price amid a bear market. Simply put, it is a short-term revival in the middle of a broader bear market. There has been debate regarding the current rally and whether it is a bear market rally that will retract again at some point. The S&P 500 rallied 30% from its low on March 23rd through the end of April.2 The average bear market rally is just under 25% before the market goes on to hit new lows shortly after. Since the end of 1927, the S&P 500 has experienced 14 bear runs (when the index closes 20% below a record peak). Within those periods, the index rallied over 15% on twenty separate occasions before pullbacks with those rallies averaging around 78 days each.12 The image to the right highlights four recent recessions and the bear market rallies within them.

But this does not mean it is time to panic. We may not go through the low that occurred on March 23rd of 2020, but we may experience another pullback before the economic fundamentals kick in and we establish a firmer market bottom and trajectory of growth. We simply do not know what will happen nor should we try to predict or call the bottom. The monetary and fiscal responses that happened so rapidly don’t have a comparison. We don’t know if the current bridge built by the Fed will suffice, and the uncertainty remains around the Fed having to provide another stimulus package later this year. The Fed did stand pat in its most recent Federal Open Market Committee meeting in late April as it kept the target rate at 0.00% - 0.25% and essentially reiterated the fact that it is ready and willing to do whatever it takes to keep the economy afloat.14

CONCLUSION

This will be a brutal recession that causes a great deal of harm, but from the equity market standpoint, it is a short-term event and we need to keep our focus on the long-term picture of our financial plan. Whether the market is truly on a path of recovery or we are set to drop 600 points this quarter, the market is still looking at an upside of over 16% to get back to where it was in February.2 The United States stock market has never failed to recoup a prior high and we are confident that this time is no different. We believe that eventually it will come back fully. If it takes a year, that is an annualized return of over 16%. If it takes two years, that is still nearly a double-digit annualized return. Regardless of what happened in April, there is still a lot that this market can do. Rather than looking at the next few months through a short-term lens, look at the big picture and the opportunity that the next 12-18 months can bring.

After the market pull back this year, it is likely that your portfolio has deviated from its initial asset allocation. If you would like to discuss your portfolio’s allocation or revisit your risk tolerance, don’t hesitate to reach out.

1 https://www.marketwatch.com/story/dow-futures-rise-as-market-watches-for-jobless-claims-and-quarterly-results-from-apple-others-2020-04-30

2 https://www.investing.com/indices/major-indices

3 https://am.jpmorgan.com/gb/en/asset-management/gim/adv/insights/market-insights-monthly-market-review-april-2020

4 https://www.cnbc.com/2020/04/29/us-gdp-q1-2020-first-reading.html

5 https://www.marketwatch.com/story/gdp-sinks-48-in-the-first-quarter---biggest-drop-since-2008-and-worst-is-yet-to-come-2020-04-29

6 https://www.federalreservehistory.org/essays/great_recession_of_200709

7 https://www.cbo.gov/publication/56335

8 https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/

9 https://medium.com/@kleiner.art/the-case-for-rebound-optimism-ca72b1a5664c

10 https://www.ft.com/content/26b4b77b-81c8-4cbb-a7ee-217b1d71e0dc

11 https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%932009

12 https://www.bloomberg.com/news/articles/2020-03-31/a-brief-history-of-s-p-500-bear-market-rallies-and-what-follows

13 https://seekingalpha.com/article/4335484-anatomy-of-bear-market-rally

14 https://www.federalreserve.gov/monetarypolicy/files/monetary20200429a1.pdf

Source (3)

Source (4)

Source (8)

" We didn’t realize that we were in the Great Financial Crisis of 2007-2009 until the second half of 2008 ."

Source (9)

Source (13)

" Rather than looking at the next few months through a short-term lens, look at the big picture and the opportunity that the next 12-18 months can bring.
"

Market Commentary | March 2020

Mon, 06 Apr 2020 21:18:45 GMT

THE MARKET

After posting nearly a 6% return in the first three trading days of March, the S&P 500 officially entered bear market territory and closed the month down 12.5% amid fears of the growing COVID-19 pandemic and a price war over oil.

The index finished the first quarter down 20% which is its worst showing since the final quarter of 2008. The Dow Jones Industrial Average (DJIA) finished the month down 13.7% which led to its worst ever first quarter performance of negative 23.1%. 1 Both of the indexes experienced their worst monthly performance since October of 2008. 2 All 11 sectors of the S&P 500 finished the quarter in negative territory with the worst being Energy down over 50% and the best performing sector being Information Technology (IT) down just less than 12%. 3 The IT sector led to slightly better performance in the technology heavy NASDAQ composite as it finished the month down 10.1% and the quarter down 14.2%. 1

The month of March was unlike anything that we’ve experienced before as the coronavirus pandemic turned our lives upside down. Many states have issued stay-at-home orders as non-essential businesses are closed and the vast majority of America is either out of work or working from home. When taking a step back to look at the month and how its events will shape the future, it makes sense to look at things in stages. What do we know about the virus? How is the virus affecting the economy? What fiscal and monetary policy is being used to aid the economy? And lastly, as investors, how do we invest in today’s environment?

THE VIRUS

There is a lot about the disease that we don’t know, but it is wise for us to look at what we do know and how that will affect us. Nothing has really changed in the last week or so, and it’s almost as if the disease is like a hurricane heading towards the coast. We are trying our best to frantically prepare for it as we know it’s about to hit land and the worst is yet to come, but the issue is that we really don’t know what the worst will entail. Looking at the left side of image below, you can see the rate of cases, recoveries, and fatalities by region. Cases on the left, recoveries in the middle, and fatalities on the right. The grey represents China’s numbers and the blue represents the world excluding China. It looks quite scary as the death rate outside of China is 5%. However, it is likely the recovery rate is much higher due to the lack of expansive testing, but it is a sobering image to look at. On the right side, you can see the growth in cases versus the crude mortality rate. Cases grew, they then fell, remained steady, and fell again.

The first rise and fall are likely a function of testing and the initial uptick as the virus gained ground. Pay close attention to the area around March 17th when the virus grew right around 200% for a steady period of time. Without risk mitigation like social distancing, the novel virus would go unchecked, and the steady rate surrounding March 17th can lead us to the opinion that it is the rate that the virus would grow at if left to its own devices. Meaning cases would triple every week and half of the United States would contract COVID-19 within three months. With mitigation in place and better testing, the death rate is likely to go down over time. One country that we can look at for guidance is South Korea. They seem to have done a good job taming the virus and are experiencing a death rate of roughly 1.7% as of April 2nd. 6 Even that seems to be high, but if you cut the number in half to 0.85% and multiply that by half of the U.S. population, it is over 1.3 million people dying and it’s easy to see why these social distancing measures are being put in place. While we all hope that this is over sooner rather than later, saying that this will pass in a few weeks may be overly optimistic. As soon as citizens relax the social distancing measures, it is likely that the growth rate in the number of cases will flare up again. In an attempt to flatten the disease curve, we must keep some degree of social distancing in place until we get better treatment or a vaccine. Many believe a vaccine will be in place within 12-18 months. 7 As Chief Global Market Strategist from J.P. Morgan, Dr. David Kelly says, “2020 will be the year of the virus, 2021 is the year of the recovery, and 2022 is back to normal”. 5

THE ECONOMY

For the remainder of 2020, we will be looking at a social distancing economy. As we take measures to flatten the disease curve, we will also be extending the timeline of economic recovery. If we lose sight of the health crisis, we may achieve a quicker economic recovery, but at a massive cost. On the flip side, if we focus on the health crisis, the economy must adapt and is forced into a slower recovery. This is the dilemma and it leaves us with a social distancing recession.

Morgan Stanley estimates that U.S. first quarter real GDP will be down over 3%, 8 but it is harder to look at for guidance as we experienced an excessive amount of hoarding before many of the shutdowns in the second half of March. However, real GDP is projected to be down heavily in the second quarter as a result of the virus. Goldman Sachs estimates that it could be down 34%. 9 The charts below show some of the industries that will be greatly affected by the virus and their percentages related to GDP and employment. They make up nearly 20% of both.

Unemployment is likely to reach the mid-teens 9 but could raise into the high teens if more people decide to file as a result of the recently passed CARES Act (Coronavirus Aid, Relief, and Economic Security). That will make the highest level of unemployment that we’ve seen since the number was 10.8% in November of 1982 and 10% in October of 2009. 11 We’ll touch on some specifics of the CARES Act later and how it relates to retirees, but the act isn’t designed to help the economy grow faster. It is designed to keep it in suspended animation. It is a $2.2 trillion stimulus package that is three times the size of the bill passed in the wake of the 2007-2009 Financial Crisis by the Obama administration. It is designed to help both workers and companies. Workers will get paid in the form of a check from the government with limits based on their income. $250 billion will go towards expanding, enhancing, and extending unemployment.

Small businesses will receive forgivable loans, which are actually grants, based on the percentage of their workforce that they keep employed. And bigger companies will receive loans with stipulations on dividends and stock buy backs. 12 We are going to see a deep recession, however actions have already been taken by the government with the passage of the CARES Act and the Fed’s rate cut. These actions will hopefully lessen the impact on the US workforce. 13 As you can see below, rates have been cut to zero, there is basically unlimited quantitative easing, there are hardly any reserve requirements, and programs have been enhanced to promote lending.

Eventually, we will come out of this and it is our opinion that there will be a tremendous amount of pent up demand. The amount of funds on the sidelines may open the floodgates in consumer discretionary sectors. The CARES Act is likely to keep the economy afloat for a few months, and it’s highly probable that we will need another stimulus at some point. There is some fear of inflation down the road because of the stimulus, but not so much in the short or medium term with the swift contraction in demand relative to supply. It’s also possible that the Fed could tighten their policy down the line as we are going to see two massive years of national debt increases. There are no free lunches, and eventually somebody will have to pay. We believe that it will likely come in the form of taxes on the wealthy at some point as most administrations will not want to tax companies heavily and lead to another immediate downturn in the stock market. For now, the government is willing to do whatever it takes to keep the economy alive. The economy will experience a fall, a stall, and a surge. The fall has already happened, the stall is likely to last multiple quarters, and the surge will occur as we recover after the pandemic has subsided due to a vaccine.

THE OIL INDUSTRY

Regarding Oil, COVID-19 led to a destruction in demand for the energy sector as less travel and transportation calls for less oil. When you combine that with the excess supply generated by the current price war between Russia and Saudi Arabia, you end up with the largest ever price drop in oil as prices fell over 50% in the month of March. The price of WTI crude oil fell by two-thirds in the first quarter down to just over $20 a barrel. 2 Essentially, Saudi Arabia attempted to cut production in oil to boost prices, and Russia did not agree with the strategy. This forced Saudi Arabia’s hand as they decided they could outlast Russia in a price war, and the Saudis increased production while slashing prices. Saudi Arabia relies on the United States in somewhat of an unwritten protection agreement in case they ever get into trouble with Iran or others. Therefore, the Saudis are likely to experience tremendous pressure from the United States to come to a deal sooner rather than later. As of April 2nd, U.S. President Trump tweeted that the two countries are expected to come to an agreement.15 While the good news from Trump caused an increase in oil prices, it will be challenging for them rebound back up into the high $40’s due to the surplus created by the pandemic. This will be a tough year for oil in the U.S. as the breakeven price for U.S. shale producers is roughly between $48 and $54.16

A POSSIBLE PATH TO RECOVERY

Seeing what we know about the virus and how it will potentially affect the economy, how should one invest in this environment? Let’s start with looking at recessions and downturns relative to the economy. The unemployment high lags the recession bottom which lags the market bottom. In nine of the last ten recessions, it has been the case that the market has found its bottom in the middle or towards the beginning of a recession. Almost always, there is a market bottom and then a recession bottom. Every recession is different, but the market anticipates and reacts to bad news first and then subsequently recovers first. After the market uptick in the last week of March, some may wonder if it is possible to have hit a bottom so quickly when it took so long to hit the bottom during the 2007-2009 Financial Crisis. I want to point out that most analysts weren’t calling for a recession in 2007 or even the first half of 2008. No one knew that we were in one yet. It was a very slow drift down from December of 2007 through the summer of 2008, and then Lehman Brothers filed for bankruptcy that September. 17 The recession essentially began in October of 2008, followed by the market bottom in March of 2009, 1 the economy bottom in June of 2009, 18 and then the unemployment high in October of 2009. 11

Every recession is different, and it’s possible that this one just experienced a much quicker bottom in roughly a month’s time. No one wants to call the bottom, and we aren’t doing that. We are simply stating that it is possible for the bottom to have occurred on Monday, March 23rd. 1 As we mentioned, the economy will likely fall, then stall, then surge in a U-shaped fashion. We have fallen, and the second quarter is going to be a rough quarter from an economic perspective, but the question is how long do we stall? Do we move sideways through Q3 and Q4? Or do we start a slight recovery in Q3 before a surge in 2021 with a vaccine? If the latter is the case, it’s very possible that the bottom could have occurred on March 23rd. It is also possible that the market can get shocked by more negative news and we could flirt with the March 23rd low again, or even go through it. We do know the second quarter will likely continue to be volatile, along with the remainder of the year as the election approaches. At some point though, the market will focus on a rebound. As we get better clarity on the duration of social distancing protocols and treatment of the virus or a vaccine, the market will begin to recover and establish a more sustainable bottom before its trend upward.

INVESTING

To borrow some investing principles from our friends at J.P. Morgan, we recommend sticking to your plan with a diversified portfolio. 20 Times like these are when people lose faith in investing, and equities are still one of the main wealth generators. They are how we transfer our income into wealth. Looking at the current environment, the market peak on February 19th wasn’t that long ago. Even if it takes a while to get back to those levels, the equity returns are likely to be much higher than we realize on an annual basis. As of March 30th, the two-year average return it will take to get back to the peak in the S&P 500 is a 17% return per year. If it took 4 years, that is a 9% return per year. Even if it took 8 years, that is an 8% return per year. 1 It is unlikely that any sort of fixed income investment you can find will generate an 8% annualized return. This is evidence as to why it isn’t necessary to de-risk your portfolio right now. Equities are also a good source of income at the time being because the divided on the S&P 500 is 2.5%, which is significantly higher than that of the 10-year treasury yield which is 0.7%. 21

Now that we’ve made a case for equities, it is still wise to maintain your asset allocation. While fixed income may have not provided the yield one would have liked, the asset class did meet expectations regarding protection. A 60% equity and 40% fixed income portfolio (60/40) was down half as much as an all equity portfolio during the recent downturn. 1

Lastly, we will touch on timing. In our view, it isn’t wise to exit the market or lower your equity exposure, but it is wise to rebalance. The recent downtrend forced you into a more conservative portfolio than the one established by your risk tolerance. A 60/40 portfolio as of January 1st, 2020, became a 52/48 portfolio after March 23rd. 1 It makes sense to look at rebalancing your portfolio to make sure you are aligned with your risk tolerance and that you aren’t taking too conservative of an approach. We’ve discussed timing before, and the below slide is one that we’ve sent out a few times, but this time we have proof during the month of March. Timing hurts everyone. Market physics tells us that the best days and the worst days occur close together. Look at the writing in blue in the top middle of the image to the right.

On March 16th, the S&P 500 was down 11.98%, and then on March 24th the index was up 9.38%. That is the best and worst days of the market occurring within 8 days of each other. We had an up day of 6%, and three significant down days in between. March 24th and 25th were the first two positive days in a row since the index peaked on February 19th.1 More evidence that it is a fool’s errand trying to time the market.

If you’d like to reassess your risk tolerance or revisit your asset allocation and discuss rebalancing, don’t hesitate to reach out.

CARES ACT IMMEDIATE IMPACT RELATED TO RETIREMENT 23

Required Minimum Distributions (RMDs) are waived for 2020. The main reason is for account owners to avoid the large tax bill. Meaning they won’t have to take an RMD based on account values at the end of 2019 when the market was much higher.

People can also withdraw up to $100,000 from their qualified retirement accounts if it is for coronavirus-related purposes. This includes, but is not limited to, people who test positive for COVID-19, as well as those who are out of work due to being laid off, furloughed, or quarantined. They will still have to pay ordinary income taxes on the amount withdrawn, but it can be paid over a 3-year period.

1 https://www.investing.com/indices/major-indices

2 https://www.cnn.com/business/live-news/stock-market-news-today-033120/index.html

3 https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml

4 https://www.cnbc.com/2020/03/30/stock-futures-are-flat-following-rebound-from-coronavirus-sell-off.html

5 J.P. Morgan – Guide to the Markets – U.S. Data are as of March 31, 2020. John Hopkins CSSE. J.P. Morgan Asset Management. Growth in cases is the week-over-week percent change in cumulative cases outside of China. The mortality rate is the number of fatalities reported per the total number of confirmed cases reported outside of China.

6 https://www.worldometers.info/coronavirus/country/south-korea/

7 https://www.cnn.com/2020/03/31/us/coronavirus-vaccine-timetable-concerns-experts-invs/index.html

8 https://www.marketwatch.com/story/morgan-stanley-releases-new-forecast-showing-us-economy-may-drop-as-much-as-38-2020-04-03

9 https://www.bloomberg.com/news/articles/2020-03-31/goldman-sees-even-deeper-u-s-contraction-in-second-quarter

10 J.P. Morgan – Guide to the Markets – U.S. Data are as of March 31, 2020. Bureau of Economic Analysis, Bureau of Labor Statistics, Factset, S&P 500. J.P. Morgan Asset Management. Consumer spending (2019 annual): membership clubs, sports, amusement parks, campgrounds, movies, theaters, museums, libraries, casino gambling, purchased meals and beverages, packaged tours, air and water transportation, hotels and motels, and select retail goods and services. Employment (January 2020): air and water transportation, transit and ground passenger transportation, support activities for air and water transportation, arts, entertainment, recreation, accommodation, food services and drinking places, and retail ex-food and beverage stores. Earnings (2019 operating): hotels restaurants and leisure; airlines; select entertainment and travel booking companies; multiline and specialty retail; and textiles apparel and luxury goods.

11 https://www.thebalance.com/unemployment-rate-by-year-3305506

12 https://www.forbes.com/sites/leonlabrecque/2020/03/29/the-cares-act-has-passed-here-are-the-highlights/#6ca6fb6d68cd

13 https://www.fitchratings.com/research/sovereigns/deep-global-recession-in-2020-as-coronavirus-crisis-escalates-02-04-2020

14 J.P. Morgan – Guide to the Markets – U.S. Data are as of March 31, 2020. Bloomberg, FactSet, Federal Reserve. J.P. Morgan Asset Management. Market expectations are the federal funds rates priced into the fed futures market as of the following date of the March 15, 2020 emergency cut and are through December 2022.

15 https://www.marketwatch.com/story/oil-stocks-soar-after-president-trumps-tweet-of-coming-saudi-russia-production-cuts-2020-04-02

16 https://www.ccn.com/collapsing-crude-prices-will-bankrupt-u-s-shale-oil-stocks/

17 https://www.nbcnews.com/business/economy/10-years-ago-lehman-brothers-went-bankrupt-triggered-recession-could-n909546

18 https://money.cnn.com/2010/09/20/news/economy/recession_over/index.htm

19 https://select.bestinvest.co.uk/investment-guidance/investor-insights/2012/us-markets-hit-post-financial-crisis-high

20 https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/principles-for-investing

21 https://www.nytimes.com/reuters/2020/04/02/business/02reuters-health-coronavirus-markets-dividends.html

22 J.P. Morgan Asset Management analysis using data from Bloomberg. Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations for the respective strategies are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Also, since the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index. Data as of December 31, 2019.

23 https://www.finance.senate.gov/imo/media/doc/CARES%20Act%20Section-by-Section%20(Tax,%20Unemployment%20Insurance).pdf

Advisory Services offered through ChangePath, LLC a Registered Investment Adviser.

Source (4)

Source (5)

"As soon as citizens relax the social distancing measures, it is likely that the growth rate in the number of cases will flare up again."

Source (10)

Source (14)

"The price of WTI crude oil fell by two-thirds in the first quarter down to just over $20 a barrel." 2

Source (19)

"As of March 30th, the two-year average return it will take to get back to the peak in the S&P 500 is a 17% return per year."

Source (22)

"People can also withdraw up to $100,000 from their qualified retirement accounts if it is for coronavirus-related purposes."

This is a subtitle for your new post

The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.

Market Commentary | February 2020

Tue, 03 Mar 2020 22:09:44 GMT

THE MARKET

After starting the month off on a positive note, more fears surrounding the outbreak of the coronavirus (COVID-19) caused a significant downturn in equity markets to end the month.

The S&P 500 ended February down 8.41% and is now down 8.56% on the year. The NASDAQ composite was down 6.38% for the month and is now down 4.52% on the year. Bringing up the rear, the Dow Jones Industrial Average (DJIA) was down 10.05% for the month and is now down 10.94% on the year. 1 The poor performance to end February is a quick reminder of the poor performance that occurred at the end of January this year.

There are parallels to the recent market selloffs that ended the first two months of 2020. The S&P 500 was down over 2% in the last week of January, only to recover and be up over 3% during the first week of February. The index was down nearly 9% during the last week of February only to post a positive day of 4.60% the first day of March. 1 As we mentioned in last month’s commentary, nothing fundamental has changed within these U.S. companies in the index.

The coronavirus has caused transitory negative events that push down the stock price of these companies. Whether the virus is causing factories to slow production or causing retail stores to close shop for a few days, these are all temporary setbacks that can potentially create value for the investor. When the factories close or slow production, or when the retail stores close for a period, the fundamental aspects of the companies are not changing. They still have the same products, the same management (aside from Disney), and the same level of sophistication that it takes to succeed in this economy.

When the transitory negative event reverses (slowdown or containment of the virus), the companies will go back to their normal operations. The virus doesn’t have to be fully contained and a vaccine doesn’t have to be finalized in order for the negative event to reverse. The public panic simply has to subside.

We are in a headline driven world today. Social media and more ways for the public to consume news and headlines fuel the panic caused by the virus. As history has shown, eventually the panic will dissipate and normal day to day activities will resume. The panic could worsen over the next month or it could completely disappear. The important thing is that we don’t panic with our investment account as well. The image to the right, also pictured in last month’s commentary, shows the ability of global equity markets to persevere through past outbreaks.

As mentioned last month, we think that it is very possible to see a V shaped recovery bringing the market back to pre-virus levels, and we reiterate our position to stay disciplined in your current investment allocation. For less risk averse investors, the virus has created buying opportunities in the market. Looking at some well-known companies, they were all down significantly in the last week of February due to the virus, but all rebounded during the first day of March. Apple (AAPL) was down over 14% during the last week of the month and was up 9.31% on March 3rd. Microsoft (MSFT) was down over 10% and then was up 6.60%. Procter & Gamble (PG) was down nearly 12% and then was up 5.59%. 3

As a whole, the DJIA was up over 5% on March 3rd, and the S&P 500 was up 4.60% to start the month. 1 If you exited the market during the last week of February, you likely missed the recovery that occurred on Monday, March 3rd. It’s important to stay disciplined in both the short term and the long term. History has shown us that the market will recover. Whether it takes one day, one week, one month, or one year is anyone’s guess, but staying disciplined in your investment allocation will allow you to participate in the recovery. Trying to time the market regarding when to exit and when to reenter is not the best solution. It comes down to time in the market, not timing the market.

FIXED INCOME

Risk aversion seemed to be everywhere aside from fixed income last month as there was a flight to safety. Commodities fell just as equities did. The bright spot was fixed income with the Global Agg up 0.7% and U.S. Treasuries leading the fixed income sector being up 2.7% on the month.

The flight to safety increased bond prices and pushed down bond yields. We discussed the meaning of a flat yield curve last month which is when those with money to loan are willing to accept the same interest rate to loan their money short-term as they would if they loaned it long-term. An inverted yield curve means that the short-term instruments are yielding more than the long-term instruments. When the 1-year or 2-year Treasury is yielding more than the 10-year.

Previously, a few inversions in a row have preceded a recession. We had inversions in mid-1998 and early 2000 prior to the recession. We also had inversions in early 2006, mid-2006, and early 2007 prior to the Global Financial Crisis. As many investors are aware, we saw a brief inversion on February 25th last month. We actually had one in early 2019 as well. 5 Does that mean we are on the way to a recession? In our opinion, and according to one former official at the Federal Reserve, not necessarily.

The Fed reacted to the early 2019 inversion with rate cuts and 2019 finished with the S&P 500 up over 30%. 1 In an article written by Sunny Oh of MarketWatch, he interviewed PGIM Fixed Income chief economist Nathan Sheets, a former official at the Fed and the U.S. treasury department. According to the article, the intense focus on the predictive powers of the yield curve may have had the perverse consequence of making the bond-market gauge a less reliable recession indicator. The central bank’s preemptive action of lowering interest rates eased financial conditions and may have reduced the odds of a recession last year, undercutting the worrisome signal sent by the yield curve.

According to Sheets, “If you get in a world where the curve inverts and that makes the Federal Reserve, holding all else equal, more likely to ease policy, the curve inversion’s connection to recessions may be broken because the inversion is going to draw monetary stimulus that offsets it”. Sheets also added, “Once you start paying attention to any economic variable and you start using that as an indicator for policy, then the nature of that relationship to the economy is going to change”.

While Sheets isn’t dismissing the usefulness of the yield curve, he is simply stating that it is only one measure to forecast recessions, just as are corporate debt levels and unemployment claims. 6 The major concern among investors when the yield curve inverts is that of tight financial conditions where banks aren’t willing to lend. However, if the inversions are causing the Fed to proactively ease financial conditions by lower rates, then the likelihood of a large downturn becomes smaller.

The next Federal Open Market Committee (FOMC) meeting is scheduled for late March and meeting minutes are likely to be monitored closely. 7 Whether it’s positive or negative, you can expect to see market volatility resulting from the meeting as the Fed may or may not decide to lower rates.

Update: On Tuesday, March 3rd, the Fed decided to lower interest rates, the first emergency rate move since the depths of the Financial Crisis. This likely helps to validate Mr. Sheets’ above opinion. 8

CONCLUSION

We believe that maintaining a balanced diversified portfolio could benefit investors. It’s possible that the panic surrounding the virus outbreak could continue causing bond yields to continue to decline and thus prices to increase then making core fixed income valuable to your portfolio. With the uncertainty of the news surrounding the virus, it’s also possible that risk aversion will not continue letting equities continue their rebound following the end of February.

The market selloff was mainly driven by fears of the coronavirus as it continues to spread. There are international companies closing doors until the virus can be contained, along with supply chain disruptions for some U.S. companies with operations overseas.

In today’s headline driven society, the volatility will continue for as long as the virus is in the news. We will see upticks when news of a vaccine leaks or signs of containment are seen, and we will see downticks when the number of cases increase or when a new city has a known case. It’s important to note that the virus is not changing the fundamentals of these companies. This is a temporary setback. A transitory negative event that likely creates value and buying opportunities. We recommend staying disciplined to your current investment allocations based on your risk tolerance, and if you’d like to revisit that, don’t hesitate to reach out.

With the U.S. Presidential Election set to take place in November, volatility is likely to occur through the remainder of the year. As of the writing of this commentary, Super Tuesday has yet to occur, but that is likely to cause even more short-term volatility. As a reminder, when the market is volatile, it’s important to avoid these mistakes.

Emotional Decision Making – We have a plan in place that accounts for your goals, risk capacity, and time horizons. Stick to your plan.

Recency Bias – Don’t drive in the rear-view mirror. Investments that were down today may be the ones that are up tomorrow.

Not Understanding Your Investment Risk – We face multiple risk aspects in investing. If you are uncomfortable with your portfolio, we can re-evaluate and re-calibrate your portfolio to match your risk.

Trying to Time the Market – It boils down to time in the market, not timing the market. Emotional reaction to real time news can trigger investors to sell low and buy high. Be patient.

Narrow Investing without Proper Diversification – We work hard to create and deliver diversified portfolios that match your risk tolerance. If you have any questions or hesitations, let’s talk.

Communication – We are here for you. It is important that you feel comfortable with your investments. It is also important that we understand your concerns. Please do not hesitate to call or e-mail us with any questions or concerns.

1 https://www.investing.com/indices/major-indices

2 https://www.thecapitalideas.com/articles/coronavirus-impacts-markets

3 https://www.investing.com/equities

4 https://am.jpmorgan.com/gb/en/asset-management/gim/adv/insights/market-insights-monthly-market-review-february-2020

5 https://www.forbes.com/sites/leonlabrecque/2020/02/26/another-yield-curve-inversion-symptom-of-covid-19-or-a-recession/#103bba4d26e8

6 https://www.marketwatch.com/story/the-yield-curve-may-be-losing-its-predictive-power-because-its-too-closely-watched-says-former-fed-official-2020-02-25

7 https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

8 https://www.nytimes.com/2020/03/03/business/economy/fed-interest-rates-coronavirus.html

Advisory Services offered through ChangePath, LLC a Registered Investment Adviser.

"The S&P 500 was down over 2% in the last week of January, only to recover and be up over 3% during the first week of February."

Source (2)

"The S&P 500 was down over 2% in the last week of January, only to recover and be up over 3% during the first week of February."

Source (4)

"The Fed reacted to the early 2019 inversion with rate cuts and 2019 finished with the S&P 500 up over 30%."

"It’s possible that the panic surrounding the virus outbreak could continue causing bond yields to continue to decline and thus prices to increase then making core fixed income valuable to your portfolio. "

Market Commentary | December 2019

Sun, 01 Mar 2020 22:37:22 GMT

THE MARKET AND ECONOMY

The market continued to exceed expectations in 2019 as the S&P 500 Index had its best performing year since 2013. The S&P Total Return Index (S&P TR) closed the year up 31.49% due to a 3.02% increase in the month of December. 1 Both the Dow Jones Industrial Average (DJIA) and the NASDAQ ended the decade just as strong. The DJIA finished 2019 up 22.34% with a 1.74% increase in December, and the NASDAQ ended the year up 35.23% after a strong 3.54% increase in December. 2 Continuing with good performance reviews, core fixed income ended the year in positive territory as well. The Bloomberg Barclays US Aggregate Bond Total Return Index finished the year up 8.72%. This was in sharp contrast to 2019 when core fixed income was almost perfectly flat with a return of 0.01% while S&P TR was down 4.38%. 3

Dovish shifts in central banks’ policies combined with a strong U.S. economy allowed both stocks and bonds to perform well. The dovish shifts, think lower interest rates, have a lot of investors chasing yield, and we are getting quite a few questions on high yield strategies. To be clear, high yield strategies do have a place in many portfolios for a certain allocation. What the average investor doesn’t realize, is that “high yield” strategies, or riskier bonds, do have a positive correlation to the equity market. When the equity market goes down, many high yield vehicles will follow. These high yield strategies are less vulnerable to interest rate shifts but are more reliant on the strength of the issuing company (credit risk). With 2019 being a great year for equities and some volatility expected in 2020, it is wise to be aware of the fixed income vehicles you are using to seek yield. High yield vehicles will still be exposed to credit risk and could have equity-like volatility. Continue to discuss your overall investment strategy with a financial professional and if income is your goal, be sure to explore all options and not just pick the vehicle with the most attractive yield.

CURRENT EVENTS UPDATE

Brexit

The United Kingdom’s general election occurred on Thursday, December 12th. Having failed to obtain a majority in the 2017 general election, the Conservative party won by a landslide to earn its largest majority since Margaret Thatcher won a third term in 1987. The party finished with 365 seats out of the 650 available. Prime Minister Boris Johnson stated that they will get Brexit done by January 31st. Jeremy Corbyn said that he would not lead the Labour party into another election, and Jo Swinson has said that she will step down as the Liberal Democrat leader. 5 The country is all set to leave the European Union next month and then they will enter a transition period. This transition period can be extended at the end of June if need be, and a trade deal is hoped to be agreed upon and ratified by the end of 2021 or they may officially exit in 2021 without a trade deal in place. 6

At the moment, the United Kingdom (UK) trades with the rest of the world as a member of the European Union (EU). If an agreement is not reached, the UK will go from trading with EU rules to trading with WTO (World Trade Organization) rules. Pro-Brexit economists believe that most trade has been done on WTO terms already, but many others believe that the UK will have to make adjustments if an agreement is not reached. If a deal is not reached, around 40 different trading agreements between the EU and other countries will no longer apply to the UK. 7 While the odds of this happening are slim now that the Conservative party has their majority, it’s still a possibility to ponder.

US/China Trade War and the US Trade Deficit

The trade war has the United States on the verge of its first annual decline in trade deficit since 2013. The trade deficit fell 8.2% in November down to $43.1 billion which is its lowest mark since October of 2016. While U.S. oil exports have aided in the cause, it is mainly due to the decrease in imports of Chinese goods from tariffs. Even as the gap with China has shrunk, it has widened with a few other countries such as Mexico and Taiwan. 9 The overall deficit isn’t likely to go away anytime soon, but the decrease is still a positive.

United States President Donald Trump has announced that he will sign the long-awaited “phase one” portion of the trade deal on January 15th this year. He said that it will be signed in Washington with “high level representatives” from China in attendance. He also stated that he will be traveling to Beijing at a later date to discuss “phase two” and that he is calling off plans for tariff increases due to the progress made between the two countries. 10 The two countries seem determined to end the dispute, but experts say that the most contentious issues will be harder to resolve and that the trade war may drag on for months, if not years.

CONCLUSION

As we open the year, there are some things that we will want to keep an eye one. The election will gradually gain more traction throughout 2020 as investors will closely watch to see who will control the presidency and the Senate in 2021 and beyond. Presidential and Congressional candidates all have a wide range of tax and fiscal views that could potentially hurt the outlook for many corporations. Unemployment has remained low and economic growth has continued to be just strong enough. Investors will also be watching the growing tensions between the United States and Iran, along with the continued progress of the U.S./China trade war. Overall, the outlook of the U.S. economy remains healthy, but the chances of a 2019 repeat performance are slim.

With 2019 being one of the least volatile years for the market in the last decade, there are some expectations of market volatility due to the events mentioned above. Having a financial plan and an appropriately diversified portfolio are key first steps for weathering any market environment. Furthermore, with recent regulatory changes, effective January 1, 2020, the Secure Act may have materially impacted previously created retirement income and legacy strategies. 12 Regardless of whether you have questions on your current investment strategy, want to discuss material financial changes in your life that have recently occurred, or want to review your previously created financial plan to ensure it still aligns with your financial objectives, do not hesitate to schedule a conversation today.

1 – https://us.spindices.com/indices/equity/sp-500

2 – https://www.investing.com/indices/major-indices

3 – http://performance.morningstar.com/Performance/index-c/performance-return.action?t=XIUSA000MC

4 – https://www.cnbc.com/2019/12/31/dow-futures-last-trading-day-of-2019.html

5 – https://www.bbc.com/news/election-2019-50776671

6 – https://www.bbc.com/news/uk-politics-46393399

7 – https://www.euronews.com/2018/12/19/how-would-uk-eu-trade-be-affected-by-a-no-deal-brexit

8 – https://www.cnn.com/uk/live-news/uk-election-day-2019-dle-ge19-gbr-intl/index.html

9 – https://www.marketwatch.com/story/us-trade-deficit-sinks-82-to-3-year-low-in-november-amid-china-trade-war-2020-01-07

10 – https://www.bbc.com/news/business-50960490?intlink_from_url=https://www.bbc.com/news/topics/ce25yderw6pt/trade-war&link_location=live-reporting-story

11 – https://tradingeconomics.com/united-states/balance-of-trade

12 – https://www.marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21

Source (4) – FactSet. Data as of market close on 12/31/2019. S&P Returns are without dividend reinvestments

Source (8)

US Trade Deficit in Billions

Source (11)

"Overall, the outlook of the U.S. economy remains healthy, but the chances of a 2019 repeat performance are slim."

Market Commentary | January 2020

Wed, 05 Feb 2020 21:06:51 GMT

THE MARKET AND ECONOMY

The market continued its 2019 run to begin the new year, but it turned out to be a tale of two halves as the month came to an end.

The S&P 500 was up over 3% on the month as of market close on January 23rd, only to finish the month relatively flat at negative 0.04% in part due to late month scares from the coronavirus. 1 The first half performance of the index can be attributed to the quick de escalation of tensions between the United States and Iran, along with the January 15th signing of the phase one trade deal between the United States and China. The Dow Jones Industrial Average (DJIA) finished the month down 0.89%, while the NASDAQ Composite (IXIC) finished the month up just over 2%. The NASDAQ composite suffered a similar end of the month drop like the S&P 500 did, but the NASDAQ performed slightly better in the first half of the month up nearly 5% as of market close on January 23rd. 2

Below is a chart of the leading world stock market indices. While the S&P 500 continued to lead the pack, emerging markets (MSCI EM) was hit the hardest falling almost 5% on the month.

Similar to the S&P 500, both the MSCI emerging and developed markets indices started the year off on a rather positive note. What a lot of the public doesn’t realize is that China is considered an emerging market and the country is in the MSCI EM index. As you can see below, MSCI EM started the year off solid with a quick increase around the time of the phase one trade deal, only to drop over 7% with the news of the coronavirus. We will touch on the coronavirus later in the reading, but this illustration shows just how fickle the stock market can be as it relates to headlines

As nearly all the largest world stock market indices finished the month on a negative note, investors began to flee to safety. The Barclays U.S. Aggregate Bond Index finished the month up 1.92% as investors sought fixed income. 5 Thus, driving up bond prices which in turn drives down the yield, flattening the yield curve. A flat yield curve means that those with money to loan are willing to accept the same interest rate to loan their money short-term as they would if they loaned it long-term. It’s generally a sign that investors are worried about the macroeconomic outlook.

While macroeconomic fears have crept into the minds of investors due to the coronavirus, the U.S. economy remains on solid ground. The economy grew at an annualized pace of over 2% in the fourth quarter of 2019. 6 With this moderate growth, and little change to strong employment numbers, the Federal Reserve decided to leave rates unchanged which came as no surprise. 7 Fourth quarter U.S. earnings season is in in the thick of it as just under half of the companies have reported, with many doing better than expected. 8

The quick rise in tensions between the United States and Iraq at the beginning of the month along with the news of the coronavirus at the end of the month remind us that headline news can cause volatility in the markets at any time. However, the U.S. economy is still in an overall good place, and the fundamentals of U.S. companies did not change because of the coronavirus scare. With both equities and fixed income having solid years in 2019, recent equity market volatility, and fixed income around all-time highs, diversification among asset classes in your portfolio is now more important than ever.

CURRENT EVENTS UPDATE

EUROPE

ECB

As previously discussed, Christine Lagarde became the new president of the European Central Bank in 2019. The ECB is the central bank for the Eurozone (19 member states from the European Union). The ECB is tasked with monetary policy decisions for the Eurozone like the Federal Reserve (The Fed) is tasked with them for the United States. In late January, the ECB did not make a rate policy change, but president Lagarde did launch a strategic review. This is the first review for the ECB since 2003 and will cover more than just setting rates. The review will last for much of 2020 and cover things such as inflation targets, climate change, and digital money. 9 It seems as though Lagarde is beginning to set the table for her time as president of the ECB.

Brexit

On January 31st, 2020, the United Kingdom officially exited the European Union. However, this is not an end to the Brexit saga that has held a firm place in the news since 2016. A transition period has begun, and it will last for the next 11 months as the EU and the UK will need to negotiate a new trade agreement. 10 These talks are likely to be arduous, and the media is likely to continue discussion of Brexit without a trade agreement. The odds of this happening are unlikely but talks of the agreement will keep Brexit in the headlines for much of 2020.

CHINA

Phase One Trade Deal

The long-awaited signing of the phase one trade deal between the United States and China occurred on January 15th. 11 While this is good news and was received quite positively from markets both in the United States and internationally, there are still issues that remain. Tariffs are still in place and issues remain with transparency into China regarding the management of their currency. Phase two of the trade deal is next, but it is likely to be much more challenging. Phase two was originally thought to remove all tariffs, but recent news at the end of the month states that this phase could be split into two parts with phase “2A” removing only some of the tariffs. 12 This is a situation that will continue to be monitored but the signing of phase one was a step in the right direction.

Coronavirus Update

On December 31st of 2019, China alerted the World Health Organization to several cases of pneumonia in Wuhan. On January 5th, they ruled out the possibility of a reappearance of the 2002-2003 SARS virus, and on January 7th they announced identification of the new coronavirus. The first death in China was announced on January 11th, and the first death outside of China (Philippines) was announced on February 2nd. The United States is up to at least 11 confirmed cases, the most being in California with 6. 13 As of February 5th, China has reported just under 500 deaths and over 20,000 infected. 14 The outbreak of the coronavirus has sparked fears in not only the general public, but also caused a month end scare to the markets.

When the media took hold of the story on January 17th and reports began to spread, the markets started to decline. Chinese and Hong Kong markets were hit heavily, while Thailand took the largest hit outside of China as it relies on the country for tourism.

U.S. markets felt the effect of the coronavirus as well. Companies that do business in China, such as Starbucks, are beginning to close stores. U.S. airline companies have cancelled flights to the country, and there is also fear of supply chain disruption to some well-known companies like Apple (AAPL). 15

With news of potential drugs being tested and the initial public panic subsiding, markets have already begun to rebound during the first week of February. 16 Global equity markets have persevered through previous outbreaks: SARS in 2002-2003, the “bird” and swine flus, Ebola, and most recently Zika.

With technology advancements, the general public has quicker access to their portfolios than they had in the past, and the recent downturn at the end of the month is evidence of that. What’s important to realize though is that “market psychology is often highly predictable during times of crisis as investors tend to overreact to distressing news” according to Steve Watson, Hong Kong based portfolio manager for the Capital Group. He was in Hong Kong during the SARS crisis and compared the two situations, “The initial uncertainty is extremely high, and it is a difficult time for a lot of people, but once the initial panic is over and the outbreak is contained, the following market rally will be quite powerful.” 15

Assuming the outbreak is contained, Capital Group U.S. Economist Jared Franz believes global and United States economic growth will likely both experience a V-shaped recovery. “U.S. economic fundamentals remain sound, labor markets are resilient, and the Federal Reserve stands ready to take action as needed,” according to Franz. “The coronavirus looks to be a modest but temporary restraint on U.S. economic activity via secondary channels of impact but should not derail my growth expectations of roughly 2% in 2020.” 15

As with many crises, opportunities for value are created. There is a transitory negative event that occurs causing a mature company’s stock price to fall, but the fundamental financial information of the company remains the same. These events are where true value investors earn their profit. They take advantage of the drop in price, knowing that the company will return to its value when the event passes, and in this case, when the outbreak is contained.

It’s important to maintain a disciplined approach to investing with a well-diversified portfolio. Fear sells, and the media will continue to fuel the fire. There will be a lot of opinions that you read and hear, but it’s important to maintain sound judgment and rational thought. As evidenced by previous outbreaks, they rarely have a long-lasting effect on the economy. There will be short term panic and volatility, but based on history, the market should recover in due time. The early February performance is already showing signs of improvement as the S&P 500 was up nearly 3% after two full trading days. 1

1 https://us.spindices.com/indices/equity/sp-500

2 https://www.investing.com/indices/major-indices

3 https://am.jpmorgan.com/gb/en/asset-management/gim/adv/insights/market-insights-monthly-market-review-january-2020

4 https://us.etrade.com/knowledge/library/perspectives/market-happenings/monthly-perspectives-january-2020

5 http://performance.morningstar.com/Performance/index-c/performance-return.action?t=XIUSA000MC

6 https://www.cnbc.com/2020/01/30/us-gdp-q4-2019-first-reading.html

7 https://www.marketwatch.com/story/fed-holds-benchmark-interest-rate-steady-sees-economy-growing-at-moderate-pace-2020-01-29

8 https://insight.factset.com/sp-500-earnings-season-update-january-31-2020

9 https://www.irishtimes.com/business/economy/ecb-makes-no-policy-change-as-lagarde-launches-strategic-review-1.4149113

10 https://www.bbc.com/news/uk-politics-50838994

11 https://www.bloomberg.com/news/articles/2020-01-15/u-s-china-sign-phase-one-of-trade-deal-trump-calls-remarkable

12 https://www.cnbc.com/2020/01/21/mnuchin-tells-wsj-that-phase-2-of-china-trade-deal-may-not-remove-all-tariffs.html

13 https://www.businessinsider.com/wuhan-coronavirus-us-cases-health-risk-2020-1#the-first-coronavirus-case-in-santa-clara-county-was-confirmed-on-friday-3

14 https://www.aljazeera.com/news/2020/01/timeline-china-coronavirus-spread-200126061554884.html

15 https://www.thecapitalideas.com/articles/coronavirus-impacts-markets

16 https://fortune.com/2020/02/03/coronavirus-vaccine-testing-in-china/

Advisory Services offered through ChangePath, LLC a Registered Investment Adviser.

Source (3)

Source (4)

"The Barclays U.S. Aggregate Bond Index finished the month up 1.92% as investors sought fixed income."

"This is the first review for the ECB since 2003 and will cover more than just setting rates. The review will last for much of 2020 and cover things such as inflation targets, climate change, and digital money."

"On January 31st, 2020, the United Kingdom officially exited the European Union."

Source (15)

“The coronavirus looks to be a modest but temporary restraint on U.S. economic activity via secondary channels of impact but should not derail my growth expectations of roughly 2% in 2020.”Title

Market Commentary | November 2019

Thu, 05 Dec 2019 19:49:25 GMT

THE MARKET AND ECONOMY

The market continued its run throughout the month of November as the three major indexes all closed at record highs eleven times.

The S&P 500 Total Return Index (S&P TR) reached an all-time high of 3,153.62 leading up to Thanksgiving, while the Dow Jones Industrial Average (DJIA) and the NASDAQ reached their respective highs of 28,164.00 and 8,705.17 on the same day. 1 Overall, the S&P TR was up 3.63% on the month and 27.63% year to date. 2 The DJIA was up 3.72% for the month and is up 20.25% year to date. The NASDAQ was up 4.50% for the month and is up 20.60% year to date.1 The continuation of the market rally is in large part due to progress on the U.S./China trade talks and the strength of the United States economy.

Originally estimated to rise at 1.6% in the third quarter, 3 U.S. GDP (real gross domestic product) increased at a 1.9% annualized rate for the quarter according to the “advanced” estimate released in late October. 4 However, when more complete information was made available, a “second estimate” was released and the final annualized growth rate for U.S. GDP in the third quarter was 2.1%. 5 The 2.1% is actually above the 2% annualized growth rate from the second quarter. 3 Real GDP is a country’s total economic output. It is an inflation adjusted statistic that measures the value of goods and services produced by an economy over time. Governments then use these statistics to help measure the overall growth and purchasing power of an economy. We believe this better-than-expected news regarding U.S. GDP has attributed positively to market returns.

Third quarter earnings season for those companies in the S&P 500 winded down in the month of November. As of November 22nd, 96% of the companies in the S&P 500 had reported actual results with 75% of those companies beating earnings estimates and 59% of those companies being revenue estimates. The energy sector delivered the weakest performance while the utilities sector delivered the strongest. The 75% of companies beating estimates is over the 5-year average (granted those estimates have been lowered throughout the year), and the 59% of companies beating revenue estimates is even with the 5-year average. While these numbers are positive news on the surface for investors, the estimated blended earnings of all companies in the S&P 500 index was a decrease of 2.1%, which will be the third straight quarter of year-over-year declines in earnings since late 2015 – early 2016. The estimated blended revenue growth is 3.1% which is below the 5-year average of 3.5%, but still positive. To conclude, more companies are beating earning estimates, but by a smaller margin. At the end of the day, analysts believe we will see a decline in Q4 earnings followed by quite positive earnings in Q1 and Q2 of 2020. 6

The Fed

The final Fed policy meeting in 2019 is scheduled for December 10th and 11th.7 The Fed still sees 2% inflation as a sign of sustainable growth, and inflation remains slightly below that level despite recent rate cuts. Based on previous meetings and Fed Chairman Jerome Powell’s recent comments, they are likely to stay put until 2020 unless something noticeably worsens.

CURRENT EVENTS UPDATE

Trade Talks

Recently, United States President, Donald Trump, signed two bills that support the protestors in Hong Kong. The Hong Kong protests initially started against plans allowing citizens to be extradited to mainland China. Hong Kong was a British Colony until 1997 and was then set to be its own separate legal and judiciary system apart from mainland China until 2047. The recent extradition bill may begin to give China too much influence too soon over the city. President Trump supporting the Hong Kong protesters is seen as the United States taking a pro-democracy stance, but China does not agree with the U.S. interfering with these affairs.

Despite President trump supporting Hong Kong, the U.S./China trade talks have continued to progress. The next key date is December 15th. As of now, the U.S. is still set to impose a 15% tariff on $160 billion of Chinese exports into the U.S. Recent reports believe that a “phase one” deal will be completed before the December 15th date. 9

Brexit

As we discussed last month, current Prime Minister Boris Johnson and his party pushed for a snap election to occur on December 12th, 2019. In the United Kingdom, they do not elect a Prime Minister directly in the way that the United States elects a president. Instead, they elect a leader of each party, and then the leader of the party that wins the majority of the 650 constituencies in Parliament becomes the Prime Minister. The party needs 326 members in order to become the majority, otherwise, they will need to gain the support of other parties. The three main parties spent most of their time campaigning throughout the month of November. Current poll numbers have Boris Johnson and the Conservatives leading with 43% of the vote, then the Labour Party with 33% of the vote, followed by the Liberal Democrats with 13% of the vote. 10 The Conservatives want a Brexit deal, the Labour Party wants to negotiate a softer Brexit deal and then give the public another chance to vote on whether or not to leave the European Union, and the Liberal Democrats want to scrap Brexit altogether. In reality, voters care about more issues than just Brexit, and the rise of other smaller parties makes the possibility of a hung parliament (one without a majority) even higher. 11 A lot can happen before December 12th, and so far, it is likely that the Conservatives maintain the most Members of Parliament, but that they still do not gain the 326-person majority needed. Thus, they will need to get the support of smaller parties or the United Kingdom will be in the same spot it has been for the last year.

CONCLUSION

The market continued to increase for most of November with a slight hiccup to start the month of December, but we believe the market has the potential to continue its growth through the end of the year. While equity valuations continue to rise, there is potential for short-term risk if U.S./China trade negotiations fall apart ahead of the December 15th deadline. A balanced asset allocation should allow for growth potential if markets continue to increase but also allow some downside protection should things go awry.

With the end of the year approaching, it is also a good time for us to revisit your financial situation. We’ll need to make sure that we finalize the required minimum distributions (RMD) in your retirement accounts. Discuss the possibility of tax harvesting some of the losses in your investments. And lastly, it is important to revisit your risk tolerance heading into the new year and to discuss any life changes that have occurred or will be occurring in 2020.

1 https://www.investing.com/indices/

2 https://us.spindices.com/indices/equity/sp-500

3 https://www.cnbc.com/2019/10/29/third-quarter-gdp-is-expected-to-be-a-tepid-1point6percent.html

4 https://www.cnbc.com/2019/10/30/us-gdp-q3-2019-first-reading.html

5 https://www.bea.gov/news/2019/gross-domestic-product-third-quarter-2019-second-estimate-corporate-profits-third-quarter

6 https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_112219.pdf?utm_campaign=earningsinsight&utm_source=hs_automation&utm_medium=email&utm_content=55111299&_hsenc=p2ANqtz-_Z3JClBiWPWJjS1huyWBdiIRI2BFwkg6OH-WmuTR0d_Hik5YZOHuGUPsqOBWUjHo4fJtwXb1TgjhPW-V-KphlB154L8g&_hsmi=55111299

7 https://www.cnbc.com/2019/11/25/powell-says-the-fed-is-strongly-committed-to-meeting-its-inflation-goal.html

8 https://www.axios.com/trump-hong-kong-democracy-protest-08647ec1-ef52-4cd9-b24b-adc968b68e8c.html

9 https://www.bloomberg.com/news/articles/2019-12-04/u-s-china-move-closer-to-trade-deal-despite-heated-rhetoric

10 https://www.ft.com/content/263615ca-d873-11e9-8f9b-77216ebe1f17

11 https://www.bbc.com/news/uk-politics-48027580

Advisory Services offered through ChangePath, LLC a Registered Investment Adviser.

Source (5)

"As of November 22nd, 96% of the companies in the S&P 500 had reported actual results with 75% of those companies beating earnings estimates and 59% of those companies being revenue estimates."

Source (8)

"Current poll numbers have Boris Johnson and the Conservatives leading with 43% of the vote, then the Labour Party with 33% of the vote, followed by the Liberal Democrats with 13% of the vote."

Market Commentary | October 2019

Tue, 05 Nov 2019 20:54:35 GMT

THE MARKET

The beginning of October caused some concern for investors as the S&P 500 Total Return Index (S&P TR) was down 2.78% as of the close on October 8th.

However, the market continued its positive run in 2019 as the S&P TR increased 2.17% in October and is up 23.16% year to date as of market close on October 31st. 1 The Dow Jones Industrial Average (DJIA) was up 0.48% for the month and is now up 15.94% on the year. The

NASDAQ was up 3.66% for the month and is up 24.97% on the year. 2

The first week of October sparked fears of the imminent market downturn but those quickly disappeared following the 3.5% increase in the S&P TR from October 8th through October 15th. 1 It seems as though the average investor has a constant fear of recession largely in part due to the length of the current bull market. The average bull market lasts 4. years, and the current bull market is now over 10.5 years old, already over double the average timeframe. 3 Surely it must end soon? A quote from Anne Kates Smith of Kiplinger, “One thing to remember is that bull markets don’t die of old age alone. Something’s got to kill them. And the surest weapon is a recession”. 4

According to well known financial analyst Gary Shilling, we’re already in a run-of-the-mill recession where GDP may decline 1.5% instead of the almost triple 4.3% decline during the 2007-2009 Financial Crisis. 5 An argument can be made either way regarding whether we are in a recession or not, but if we are in a recession and a recession kills a bull market, does that mean we should exit the market?

On the contrary, taking a more optimistic view, we believe that we’ve been experiencing a broad market correction since the beginning of 2018 caused by three, maybe four, corrections and rebounds. The S&P TR fell 6.13% February and March of 2018, but then recovered to earn 7.28% from April through July of the same year. The index then fell 6.84% in October of 2018, increased by 2.04% in November, and then fell again in December by 9.03% for a total loss of 13.52% in the fourth quarter of 2018. That’s quite the large correction, but it was already placed in the rearview when the index gained 18.25% in 2019 by the end of April. We then saw a large decrease of 6.35% in May followed by an immediate full recovery of 7.05% in June. Since June we have had steady month over month growth with one slightly negative month in August. 1 If you pulled out of the market when things were going poorly after the fourth quarter of 2018 or in May of 2019, you would have missed the rather quick recoveries in the first quarter and June of 2019.

All of this is to say that while it has not been the smoothest ride, there has been overall market growth the last two years despite some very large negative performing months. Since January 26th of 2018 through October 31st of 2019, the S&P TR is up 9.5%. 1 Bringing it back full circle, these numbers are why it is important that we don’t overreact the first week of a month like the one that we had in October. There is going to be volatility. There will be ebbs and flows. It’s important to stay disciplined in your investment allocation and not to try and time the market.

The Fed

The United States labor market remains strong, economic activity is rising modestly, and the unemployment rate has remained low even as job gains have been good. In order to sustain these economic conditions as well as getting inflation closer to the 2% target to maintain price stability, the Fed, or the FOMC (Federal Open Market Committee), decided to cut the target range for the federal funds rate by 25 bps to 1.50% - 1.75%. 6 While this is the third rate cut, the Fed sees no need for immediate future rate cuts unless the economy weakens significantly according to Chairman Jerome Powell, “Monetary policy is in a good place”. 7 The Fed lowers interest rates in order to stimulate economic growth. Lower rates mean lower financing costs which encourage borrowing that leads to investing and spending. If rates are too low, you can have too much growth leading to high inflation which prevents a continuing economic expansion. While economic activity is good, there is a slight need to raise interest rates which is likely the main driver for the recent rate cuts. These rate cuts should allow economic activity to remain strong but not too strong, and they should also tick inflation up closer to the Fed’s target of 2%.

CURRENT EVENTS UPDATE

US-China Trade Talks

Trade negotiations between the United States and China are still causing short term market volatility as headline news seems to change week to week. President Trump announced that Phase One of the deal with China had been agreed to on Friday, October 11th, causing the market to rise. 8 Phase One was less comprehensive than initially thought as December tariffs were still in question and there was no news on how Huawei would be handled. The trade deal was expected to be signed between the two countries at an economic conference in Chile in November, but Chile recently cancelled the conference because of riots and protests. 9 President Trump said that they will announce a new site soon and move forward with Phase One being a large portion of the China deal.

Stocks fell slightly on October 31st due to trade talks after Bloomberg reported that a Chinese official said a more comprehensive plan between the two countries is unlikely to happen in the near future. 10 However, on November 1st, the Chinese Ministry of Commerce said that the two sides have come to an agreement on core trade issues causing the S&P Index to increase almost a full percent that day. 11 Remember that these short-term movements are mostly in part due to headline news regarding trade negotiations between the two countries and not to be alarmed with each and every market increase and pull back.

Brexit

At the start of the month, Brexit was still scheduled for October 31st. There were early signs of progress, but the key issue remained regarding border management between Northern Ireland (Great Britain) and Ireland (European Union). Prime Minister Boris Johnson had until October 19th to reach a deal otherwise he would need to request a third extension for Brexit. It looked as if a deal has been reached between British government and the European Union regarding the border management until British Parliament decided to meet on a Saturday (October 19th) for the first time since 1982 and refused to move the deal to a vote. However, Boris Johnson did not ask for the extension and eventually British Parliament approved the idea of the revised plan with one caveat. They would not vote on the plan until after the October 31st deadline meaning an extension would be necessary that would likely move the Brexit deadline to the end of January

in 2020. 13

To make things more interesting, Prime Minister Johnson called for a snap election to occur on December 12th which was at first rejected before being unanimously approved. Johnson is betting that his Conservative party can win a majority in Parliament by selling their Brexit plan to the public, but there is great risk that neither party could win a clear majority leaving Parliament being even more divided than it is today. Great Britain’s previous Prime Minster prior to Johnson, Theresa May, had called for a snap election in 2017. The 2017 election actually decreased the party majority in Parliament which many believe was the beginning of the end for May’s time in office. 14

It’s been over three years since Great Britain voted to leave the European Union and the country is on it’s third Prime Minister after David Cameron resigned in 2016 followed by Theresa May in 2019. An an optimist, one would hope that the December 12 snap election will lead to a Conservative Party majority and Brexit deal in January of 2020. Expect November to be a lot of headlines and campaigning to the British public.

Continuing with the theme of Europe, as we discussed earlier this year, Mario Draghi is now out as the President of the European Central Bank. On November 1st, Christine Lagarde will take office. 16

Final Note

Volatility has decreased significantly since we last discussed it in August’s commentary. The VIX (CBOE Volatility Index), which is a measure of the market’s expectation of volatility, averaged 18.98 in August of this year which was its highest for a month since the beginning of the year in January. The VIX then averaged 15.56 in September and 15.47 in October. 17 Usually a lower VIX signal more market gains. But even with the low volatility, it took until October 28th for the S&P TR to surpass its previous yearly high from July. 1 With United States stocks trading near their all-time highs, market growth has been kept in check due to lack of progress on the United States-China trade negotiations, strong economic activity but questionable effects of the recent rate cuts, and uncertainty surrounding Brexit with its new timetable. You should look to rebalance to your initial asset allocations based on your risk tolerance as these uncertainties can cause market volatility to increase. November should provide color on the United States-China trade talks, December should on Brexit, and both of those months should paint a clearer picture on how the economy reacts to the most recent rate cuts.

1 https://us.spindices.com/indices/equity/sp-500

2 https://www.investing.com/indices/major-indices

3 https://www.cbsnews.com/news/whats-a-bear-market-and-how-long-might-it-last/

4 https://www.kiplinger.com/article/investing/T038-C008-S003-when-will-the-bull-market-end.html

5 https://www.realvision.com/tv/shows/interviews/videos/the-market-can-remain-irrational-longer-than-you-can-remain-solvent

6 https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

7 https://apnews.com/b6f55192f44e4eaca45217228c8b6ca4

8 https://www.npr.org/2019/10/11/769469085/trump-announces-phase-one-of-trade-deal-with-china

9 https://www.npr.org/2019/10/31/774862059/as-protests-persist-chiles-president-cancels-two-major-international-summits

10 https://www.bloomberg.com/news/articles/2019-10-31/china-said-to-doubt-long-term-trade-deal-possible-with-trump

11 https://www.cnbc.com/2019/11/01/china-says-its-reached-a-consensus-in-principle-with-the-us-during-this-weeks-trade-talks.html

13 https://www.npr.org/2019/10/19/771558600/u-k-parliament-votes-to-delay-vote-on-johnsons-breakthrough-brexit-plan

14 https://apnews.com/5ff4178638ac407c8dfe5597f81b6c36

15 https://www.dailymail.co.uk/news/article-6483191/Mays-fight-solve-Irish-border-problem-threatens-Brexit.html

16 https://apnews.com/127fb72f740d439d9bbfe7438a2aa3a8

17 https://finance.yahoo.com/quote/%5EVIX?p=%5EVIX

"The average bull market lasts 4. years, and the current bull market is now over 10.5 years old, already over double the average timeframe."

"We’re already in a run-of-the-mill recession where GDP may decline 1.5% instead of the almost triple 4.3% decline during the 2007-2009 Financial Crisis."

"There has been overall market growth the last two years despite some very large negative performing months."

"The Fed, or the FOMC (Federal Open Market Committee), decided to cut the target range for the federal funds rate by 25 bps to 1.50% - 1.75%"

"President Trump announced that Phase One of the deal with China had been agreed to on Friday, October 11th, causing the market to rise."

"It looked as if a deal has been reached between British government and the European Union regarding the border management until British Parliament decided to meet on a Saturday (October 19th) for the first time since 1982 and refused to move the deal to a vote. "

Source (15) - Northern Ireland/Ireland border issue at the center of the Brexit hold up

Market Commentary | September 2019

Sat, 05 Oct 2019 19:33:39 GMT

THE MARKET

The S&P finished off a mediocre third quarter by increasing 1.72% in September, gaining back nearly all of the 1.81% that it lost in August.

A similar scenario occurred for the DJIA as it was up 1.95% for the month of September coming after a 1.72% loss in August. The NASDAQ didn’t fare quite as well relative to its August performance as it was up 0.46% in September following its 2.60% loss in August. The broader exciting news is that the S&P 500 is up 19% through the first three quarters this year. This is the best start to a calendar year for the S&P 500 since 1997. 1

Asset Class Performance and the Callan Chart

While the S&P 500 is enjoying a very solid year thus far, most equity portfolios and asset allocation portfolios are slightly underperforming the index. ChangePath’s models are up anywhere from 8% to 12% through the first three quarters depending on the risk tolerance. We want to stress the importance of asset allocation and diversification. As we experience volatility, and the fear of a market downturn in the latter part of 2019, a diversified asset allocation portfolio will provide more downside protection than investing in the index. Why? To illustrate, especially as we near the end of a market cycle and recession fears loom, let’s reference the below image.

The above image is called a Callan Chart. It is often referenced as the Periodic Table of Investment Returns. Each color represents a different asset class and you can see how they performed year over year. The quick takeaways from the graph are the returns, and more importantly, the volatility associated with each asset class. For example, in 2006, REITs are the best performing asset class and the next year they are the worst. In 2007, emerging market (EM) equity was the best performing asset class, in 2008 it was the worst, then in 2009 it was the best again only to once again be the worst in 2011. To help identify the value of a diversified asset allocation portfolio, please take a look at the white boxes connected by black line. The white boxes represent an annually rebalanced asset allocation portfolio that is never better than the third best performing asset class and never worse than sixth. A diversified portfolio is meant to smooth out the ups and downs of the market, avoiding the results REITs experienced in 2007 and EM equity in 2008. Winning isn’t the most important metric to focus on. Often times it is losing, which is why a diversified asset allocation portfolio, suited to your risk tolerance, is essential to a successful investment strategy.

The S&P 500 Index

We’ve established that asset allocation portfolios have lagged the S&P 500 this year. Many investors may be questioning why they aren’t achieving the same returns as the S&P 500 this year and quite frankly, every year since 2012. But why is that?

Stock indexes are great tools because they allow us to see a thousand-foot view of what the market is doing as a whole. There are small cap indexes, large cap indexes, international indexes, and many other indexes that can help investors get a big picture view of what is happening in a certain style or sector. Most investors use the S&P 500 to get a sense of the entire market and often compare their own portfolios to the index. However, because of the way that the S&P 500 is constructed, we aren’t getting the best view of the entire market. We are mainly looking at how the largest stocks have performed.

The S&P 500 is a market-cap weighted index. What that means is that the larger the market cap of a company, the more impact is has on the index. The chart above shows the effect that the five largest companies in the index have on its performance. The companies are Apple, Amazon, Alphabet (Google), zMicrosoft, and Facebook, which have all performed very well since the financial crisis. As you can see, Microsoft (MSFT) is currently one of the largest stocks in the index. It is up over 370% since the start of 2012. Fossil Group (FOSL) is one of the smallest stocks in the index. It is down over 80% since the beginning of 2012. 4 When MSFT makes a big move, it greatly impacts the index, and when FOSL makes a move, it hardly effects the index. Essentially, the S&P 500 is moved by large cap equities. 5 To bring it back full circle, let’s look at the previously shown Callan Chart once again.

As you can see, this time there is a line drawn to separate 2008 and 2009. Once again, the white box represents an asset allocation portfolio. The light green box represents large cap companies. Prior to 2008, notice the large cap performance is fairly even with the asset allocation portfolio performance. This is to be expected and what many analysts believe to be normal. Since 2009, large cap equity has always outperformed asset allocation and by a decent amount. At some point, this should normalize and look closer to levels prior to 2009. This is comparable to the performance between the S&P 500 (large cap) and your ChangePath portfolios (asset allocation). While your portfolios may have slightly underperformed the S&P 500 over the last few years, at some point it will normalize, and asset allocation will outperform. If you are wary of a recession, look at 2007 and 2008. The asset allocation portfolios greatly outperformed large cap.

All of this is to say that it is important to stay disciplined and invest according to your risk tolerance with the correct asset allocation. You shouldn’t try to time the market with sectors and styles as evidenced by the variance in asset class performance shown in the Callan Chart. You also shouldn’t compare your portfolio’s performance to the S&P 500 as it is not an accurate comparison. Some years you will outperform the index and others you will not. The asset allocation portfolio incorporates the various asset classes and highlights that balance and diversification can help reduce volatility and enhance returns. 2

CURRENT EVENTS UPDATE

There are quite a few current events that occurred in September. Keep in mind that most of these events lead to some sort of turmoil in the market. Some are temporary like the sharp increase in the price of oil due to the attack in Saudi Arabia, and some have more lasting effects like the outcome of Brexit. Immediate market reactions to these events are no cause for alarm unless there is some sort of weakening in the fundamentals of the economy that pairs with one of these shock events for a perfect storm. Examples include the weakening economy in 1999-2000 followed by the terrorist attack on 9/11 and the weakening economy in 2006 followed by the subprime mortgage crisis and the collapse of Lehman Brothers. We will go more in depth in these as they continue to unfold.

US-China Trade Negotiations: The two sides are scheduled to meet in “early October” to continue discussions in hopes for a partial deal, and the Trump Administration continues to make threats regarding Chinese investments.

Brexit: Boris Johnson continues to promise Brexit by Halloween, but no ground has been gained.

Oil Prices: The mid-September attack on the Saudi Arabian oil field caused quite the spike in prices, but those prices have sense normalized. The tension in the Middle East will need to be monitored.

IPOs: There seems to be a lot of optimism around companies that aren’t making any money (see WeWork). It has been compared to the “dot com” bubble and there is a slight reason for concern.

Repo Market: The first injection of cash into the banking sector occurred since the financial crisis as the Fed injected $75 billion a day in temporary cash over a four-day period in mid-September. This was caused because cash was flowing out just as securities were flowing in. A repurchase agreement is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and buys them back shortly afterwards, usually the following day, at a slightly higher price determined by the repo rate. On September 17th, the repo rate jumped to 10% which was up from 2% the week prior. This rate volatility caused the effective federal funds rate to increase to 2.30%, which is above the 2.25% upper limit of the Fed’s target range. This occurred as the Fed was preparing to drop the upper limit to 2%. 7

US Politics: Nancy Pelosi announced a formal impeachment inquiry of President Trump on Tuesday, September 24th. 8 Traditionally, although with a small sample size, the impeachment inquiry should not have a long-term effect on the markets as Vice President Pence’s policies aren’t likely to be too different than Trump’s. Longer term effects could occur related to Trump’s possible re-election though as Elizabeth Warren or Joe Biden are likely to have vastly different policies.

OCTOBER UPDATE

As of the publication of this commentary on October 3rd, the S&P 500 is off to its worst start ever in a fourth quarter since the 2008-2009 financial crisis. Through the first two days of October, the S&P 500 is down 3.20%. 1 That is its worst mark since being down 5.49% to start off October of 2009. 9 This will quickly remind investors of the painful fourth quarter in 2018 that saw the S&P 500 drop over 13%. 1 There is evidence of an economic slowdown, worries about Brexit, impeachment inquiries in the United States, and on-going global issues with the US-China trade talks and the Saudi Arabia oil field attacks. These events have all contributed to the recession fears that have creeped into the market rather quickly. While these signs may cause an investor to panic and run for safety or exit the markets, it is still wise to maintain a disciplined investment approach. We caution investors trying to time the market downturn, and in August’s commentary we stressed that there would be increasing volatility throughout the remainder of 2019. However, there is reason for optimism. The probability of a rate cut by the Fed is increasing, and over the last decade, the fourth quarter has been the quarter with the highest average returns. Excluding 2018, the S&P 500 has averaged over a 4% gain in the fourth quarter over the last decade and traded positively in the fourth quarter eight out of the ten years. 10 There is uncertainty and the recession risk is real, but we aren’t predicting anything close to the selloff that occurred in the fourth quarter of 2018. As we approach the end of 2019, it is vital that you consult your advisors, confirm your risk tolerance, and stick to the plan created in your annual review. As shown above in the Callan Chart, the correct asset allocation portfolio with balance and diversification can help absorb the shock of volatility.

1 https://www.investing.com/indices/

2 JP Morgan - Guide to the Markets – U.S. Data are as of September 30, 2019

3 Seeking Alpha, July 23, 2018

4 https://www.morningstar.com

5 https://www.investopedia.com/large-cap-stocks-keep-the-s-and-p-500-afloat-4688576

6 https://www.cnn.com/2019/09/04/business/us-china-trade-war-talks/index.html

7 https://www.washingtonpost.com/business/the-repo-markets-a-mess-whats-the-repo-market/2019/09/28/e8fd43b2-e1d8-11e9-be7f-4cc85017c36f_story.html

8 https://www.nytimes.com/2019/09/24/us/politics/democrats-impeachment-trump.html

9 https://www.marketwatch.com/story/dow-sp-500-on-track-for-worst-start-to-a-quarter-since-2008-financial-crisis-as-recession-fears-accelerate-2019-10-02

10 https://www.cnbc.com/2019/10/01/dow-drops-to-start-q4-but-theres-reason-to-remain-bullish-on-stocks.html

*Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations for the respective strategies are shown gross of fees. If fees were included returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Also, since the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index. Data as of December 29, 2017.

Investment advisory services offered by duly registered person on behalf of ChangePath, LLC, a registered investment advisor. Please consult your investment adviser representative for investment advice tailored to your individual circumstances; the material presented herein is of a general nature and for informational purposes only.

Source (2)

Source (3)

Source (2)

"The first injection of cash into the banking sector occurred since the financial crisis as the Fed injected $75 billion a day in temporary cash over a four-day period in mid-September."

"There is evidence of an economic slowdown, worries about Brexit, impeachment inquiries in the United States, and on-going global issues with the US-China trade talks and the Saudi Arabia oil field attacks."

Market Commentary | August 2019

Thu, 05 Sep 2019 19:20:14 GMT

THE MARKET

After the S&P 500 hit a new all-time high during the month of July, it had its worst week of the year to start off August, and this was only a sign of the volatility to come.

The VIX (CBOE Volatility Index), a popular measure of the stock market’s expectation of volatility, averaged 19 for the month of August, up from an average of 13 in July. 1 The higher the average, the more expected volatility. Last month, the Federal Reserve issued a 25-basis point rate cut on the last day of July but seemed to be unsure about the possibility of future rate cuts this year. 2

On the first day of August, United States President Donald Trump announced additional tariffs on Chinese goods. The combination of interest rate uncertainty and trade relationship volatility caused a negative 3.07% return for the S&P 500 for the week ending on August 2nd. That was the worst weekly performance for the index since December of 2018. To follow that up, Monday, August 5th, was the worst performing day for the S&P 500 in 2019 as it dropped 2.98%. 3 This was mostly due to the escalation in the US-China trade war as China is believed to have allowed its currency to devalue. 4

The remainder of August experienced additional volatility with continued back and forth in the trade war between the United States and China, uncertainty regarding Great Britain and a possible no-deal Brexit, and an inverted yield curve.

In spite of the turmoil, the US saw strong company earnings, a positive sign for the economy. The conflict between the previously mentioned shaky situations and the strong company earnings created a choppy market and led to a 2.5% daily drop in the S&P 500 three separate times during the month of August.

As you can see in the graph below, the S&P 500 reached its monthly trough in the middle of August but has since rebounded culminating with a 2.79% return during the last week of the month. The index closed August down 1.81%. The NASDAQ finished down 2.01% and the DJIA finished down 1.72%. 3

IN INTERNATIONAL WARS

US-China Trade War

The 2.79% rebound for the S&P 500 during the last week of August was in part due to the slightly calmer tone surrounding the US-China trade war. US-China relationships have been a rollercoaster throughout the month of August. Here a few highlights from the month.

- August 1st, Trump claims the United States will impose 10% tariffs on another $300 billion of Chinese goods starting on September 1st.

- August 5th, China’s currency, the yuan, sinks to its lowest level against the US dollar in 11 years causing markets to tumble. The United States claims that China allowed this to happen in order to gain an unfair advantage in international trade. China refutes the claim and then proceeds to suspend purchases of new US agricultural products.

- August 13th, the two sides agree to talk again in two weeks.

- August 23rd, China announces new tariffs on US goods.

- Finally, on August 26th, China’s top trade negotiator calls for calmness in the trade war as he firmly opposed the escalations, to which President Trump agreed.

The US tariffs on Chinese goods are still set to be enforced on September 1st and it’s unlikely that this will all be resolved anytime soon. 6

What did this mean for investors? Simply put, it meant volatility. There is still uncertainty in the relationship, and it is likely that talks continue, however, it does not appear that the trade issues will be resolved anytime soon. It is important to note that any announcement, good or bad, when dealing with the trade war can trigger volatility in the markets, but we want to stress the importance of staying the course for now and maintaining your disciplined investment approach.

Brexit

In July, Boris Johnson, Prime Minister of Great Britain, stated that a Brexit deal would be reached “do or die” by the October 31st deadline, otherwise a “no-deal Brexit” was possible. As a deal seemed more unlikely throughout the month, Johnson took matters into his own hands.

Britain is scheduled to leave the European Union on October 31st but has yet to reach a withdrawal agreement which would soften the blow of their departure for both sides. It seemed likely that United Kingdom lawmakers would once again try to delay Brexit if a deal could not be reached. They have been trying for months to design laws that would both make a “no deal Brexit” impossible, but also ones that enable a deal and are helpful to all parties involved.

To bypass another snag, Boris wanted to prevent lawmakers from making laws that would force another delay or a cancellation of Brexit. He asked the Queen to “prorogue” parliament, or formally end the current session, to which she agreed. Essentially what this means is that lawmakers will have less time to legislate against a “no deal Brexit”.

Lawmakers have been on summer break since July 25th, one day after Boris Johnson became Prime Minister, and they are due back on September 3rd. They were then set to meet until September 14th, and during that time would try to legislate against a “no deal Brexit”. After Johnson’s latest move, parliament will now be suspended as early as September 9th which gives UK lawmakers less time to prevent the said “no deal Brexit” occurring. 7

One thing is certain, the first week of September is likely to be eventful for Boris and Great Britain. There is still time and there are still options to prevent a “no deal Brexit”, but Prime Minister Johnson has put quite a bit more pressure on lawmakers to make decisions during the early days of September.

INVERTED YIELD CURVE?

If you’ve tuned into the news lately, I’m sure you’ve heard the term “inverted yield curve” and that it can be a potential precursor to a recession. But what is it exactly?

A yield curve is a line that plots the interest rates (yields), at a set point in time, of bonds that have equal credit quality but different maturity dates. The most commonly used are US Treasury debt at 3-month, 2-year, 5-year, 10-year, and 30-year maturities. The curve plotted by these instruments is used as a benchmark for things like bank lending rates and mortgages. Normally, it resembles something like the blue line in the image below.

Short-term debt is shown having a lower yield than longer-term debt of the same credit quality. This means that you are getting paid more to lend your money for a longer period of time. The reason you are paid more is called a maturity risk premium because changes in the value of longer-term securities are more unpredictable. When the outlook of the economy and stock markets is positive, the yield curve is usually normal.

However, when investors expect longer-term bond yields to fall, they will purchase them in order to lock in those yields before they further decrease. Thus, driving the yields down even more and causing a yield curve inversion, shown by the red line in the image above. We recently experienced a yield curve inversion in August, which meant consumers were lending money for a longer period of time at a lesser rate due to such high demand for longer term bonds. An inverted yield curve can be a source of concern for a variety of reasons: short-term rates could be running high because overly tight monetary policy is slowing the economy, or it could be that investor worries about future economic growth are stoking demand for safe, long-term Treasurys, pushing down long-term rates. Why is this important? An inverted yield curve of the 2-year and 10-year treasuries has preceded the last seven recessions.9 This doesn’t mean a recession is coming soon or that it is certain to happen, but it is something to keep an eye on as it is one of the leading indicators to a possible economic downturn.

MAINTAIN A DISCPLINED APPROACH WITH YOUR PORTFOLIO

As we discussed after the month of July, volatility was bound to continue throughout the month of August.

With all the uncertainty regarding interest rates, Brexit, and the trade war between the United States and China, we stressed the importance of maintaining a disciplined investment approach. We encouraged you to maintain the asset allocation set forth by your risk tolerance questionnaire.

It’s easy to look back on a month like August and wish you would’ve been on the sidelines during some days or that you tried to time the market and exit as it was going down. It sounds simple enough, but market timing isn’t just about selling. It requires two decisions: when to sell, and when to buy back in.

As previously mentioned at the beginning of this piece, the S&P 500 experienced a daily drop of 2.5% on three difference occasions in August. However, had you decided to exit the market after those days, you likely would have been a disappointed investor. The three days when the 2.5% drop occurred were August 5th, August 14th, and August 23rd (note: each of these days coincided with announcements in the US-China trade talks mentioned above). The 2.5% drop was gained back within 3 business days each time.3 Had you exited immediately after the daily drop; you would have missed the recovery that came shortly after.

We had an idea that the volatility would continue in August, and it’s smart to expect these market ebbs and flows to occur, but rather than try to time the ups and downs, we need to manage them with a disciplined asset allocation approach to investing.

1 https://www.cboe.com/index/dashboard/VIX#vix-performance

2 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20190731.htm

3 https://www.investing.com/indices

4 https://www.nytimes.com/2019/08/05/business/economy/us-china-yuan-renminbi-trump.html

5 https://www.barchart.com/stocks/quotes/$INX/interactive-chart

6 https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/

7 https://www.bbc.com/news/uk-politics-48936711

8 https://www.morningstar.com/articles/921187/what-does-inverted-yield-curve-mean

9 https://www.marketwatch.com/story/5-things-investors-need-to-know-about-an-inverted-yield-curve-2019-08-14

Advisory services offered through ChangePath, LLC a Registered Investment Adviser. Please consult your investment adviser representative for investment advice tailored to your individual circumstances; the material presented herein is of a general nature and for informational purposes only.

The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.

"Trump claims the United States will impose 10% tariffs on another $300 billion of Chinese goods starting on September 1st."

"Boris asked the Queen to “prorogue” parliament, or formally end the current session, to which she agreed. Essentially what this means is that lawmakers will have less time to legislate against a “no deal Brexit”.

"It sounds simple enough, but market timing isn’t just about selling. It requires two decisions: when to sell, and when to buy back in. ”.

Market Commentary | July 2019

Mon, 05 Aug 2019 19:05:35 GMT

THE MARKET

The S&P 500 reached a new all-time high on July 26th pushing its gains for the year to over 20%, which is the best performance during the first seven months of the year since 1997. 1

The markets continued their growth in 2019 with the S&P 500 increasing another 1.31% in July, the DJIA climbing another 0.99%, and the NASDAQ finishing the month up 2.11%.

However, due to the strengthening dollar, commodities and international/emerging markets ended the month down. MSCI ACWI ex US which represents both developed and emerging market countries (excluding the United States) finished the month down 1.21% and the Bloomberg Commodities Total Return Index finished the month down 0.67%. The Barclays Aggregate Bond Index ended the month of July relatively flat.

Overall, the above-mentioned asset classes are all positive for the year as seen in the chart below.

In a rare occurrence, both equities and fixed income are having a great year.

2019 marks just the 10th time since 1980 that both the S&P 500 and long-term treasuries are up more than 5% to start the year. 3 (note: SPAB is used as a proxy for long-term treasuries when investing in fixed income). Gains occurring in both equities and fixed income during the same period is seen as unusual. When bond prices rise, their yields decrease, which is usually an indicator that an economic slowdown is ahead so one would normally pull back on their equity exposure and vice versa. However, uncertainty surrounding interest rates and what the Federal Reserve will do has led to positive performance in both stocks and bonds this year. Equity investors are still optimistic that the recovery will continue, while fixed income investors are a little more weary. Thus, causing investors to place money in both stocks and bonds.

SPEAKING OF INTEREST RATES

Investors had to wait until the last day of the month for the Federal Open Market Committee (FOMC) meeting to see whether the Fed would cut interest rates or not, and if so, by how much.

As discussed in last month’s commentary, it was not a foregone conclusion that rates would be cut, but there was the strong possibility. Before diving into the outcome of the July 31st FOMC meeting, it is be helpful to understand why the Fed decides to increase or decrease rates.

For the last 11 years, the Fed has either stood pat on interest rates or decided to increase them, which is seen as tightening monetary policy. Following the 2007 – 2009 Financial Crisis, the Fed cut rates to 0% in December of 2008, where they remained there for seven years. 4

When interest rates are low, it means that it is cheaper to borrow money (For example, taking out a car loan is more appealing at 2% than at 10%). The reason for low rates is to stimulate the economy and encourage consumer spending. The federal funds rate is the rate at which banks and credit unions lend money to other depository institutions overnight. Rates on credit cards and home equity lines of credit are cheaper, along with rates on mortgages and other loans. In the same way, companies can borrow money cheaper and invest those funds to grow their business.

Both consumer and business spending increases which leads to economic growth. With the economy having experienced quite the recovery, since December of 2015, the Fed has slowly increased rates to a more normalized level in order to stabilize inflation or to slow the rapid growth of the economy. With the S&P 500 hitting an all-time high in July of 2019, many people are wondering why the rates are being cut? Even though the economy is healthy, it isn’t behaving as expected with inflation and market-determined interest rates still lower than anticipated. 5 A rate cut would help to normalize both market-determined rates and inflation.

When all was said and done...

The Fed announced a 0.25% decrease of interest rates to a target range of 2.00 – 2.25%. 6 This is the first decrease since December of 2008.

Many investors, including the White House, thought that this should have been somewhat of an all or nothing rate change. Either don’t cut rates at all or cut rates by 0.50% or more to signal that this would only be a onetime decrease.

The 0.25% rate cut left the remainder of the year up for interpretation and comments by the Fed Chair, Jerome Powell, which only seemed to confuse investors even more. Throughout his post-meeting press conference, he claimed that the rate cut was a mid-cycle adjustment and that future rate cuts were not a sure thing. These comments caused a quick decline in the stock market. He followed that up by later backpedaling in the same press conference which quickly caused the market to increase and recover the losses that it just incurred. 7

This volatility during the short-term time frame of a press conference shows just how volatile the stock market can be with rate uncertainty. Overall, due to the non-transparent Fed, investors can expect more market volatility in the month of August with a slightly bullish outlook on equities.

IN INTERNATIONAL NEWS

European Central Bank, Brexit, and China uncertainty dominate headlines

On July 2nd, Christine Lagarde was nominated as the new president of the European Central Bank (ECB) and she will be leaving her current position of director of the International Monetary Fund (IMF). 8 The ECB is the central bank of the 19 European Union countries that have adopted the euro. The IMF is an international organization headquartered in Washington, D.C., consisting of 189 countries with the goal of promoting economic global growth and financial stability, encouraging international trade, and reducing world poverty. The announcement of Lagarde’s change in roles is arguably the biggest change in leadership for the international financial system in decades. Lagarde will leave the IMF in good shape having taken on a broad range of issues, while her task with the ECB will be a tall one. The European environment calls for someone not only with technical skills but with the political wherewithal to navigate the course. Can the ECB stabilize the European economy?

Boris Johnson was elected as Prime Minister of the United Kingdom on July 23rd following Theresa May’s resignation. 9 Brexit led to May’s resignation and it will undoubtedly be the focus of Boris’ early months in office. He has taken a pro-Brexit stance and has been quoted as saying a Brexit deal will be reached “do or die” by the October 31st deadline. This could mean the U.K. leaves the European Union without a deal in place, although that is not the ideal scenario and is unlikely. Johnson could also bypass parliament. Regardless, Johnson is a brash figure and how he handles Brexit will matter overseas and here at home in the United States.

U.S.-China trade talks remained stable with the two countries in a truce for most of July. However, on July 31st, face to face negotiations between China and the United States did not lead to a deal. 10 The topics of focus were forced technology transfer, intellectual property rights, non-tariff barriers and agriculture. Negotiations are expected to continue in September. However, Trump announced new tariffs on Chinese goods to start the month of August which led to China devaluing its currency on August 5th. The market did not react kindly to the news from China. Expect a more detailed update on the situation in next month’s commentary.

MAINTAIN A DISCIPLINED APPROACH

With all the uncertainty surrounding interest rates, Brexit, US-China trade talks, and market volatility, it is wise to make sure that you maintain a disciplined investment approach.

Maintain the asset allocation that resulted from your risk tolerance questionnaire. It is never encouraged to try and time the market by pulling out funds based on news flashing across the television. Those are impulse decisions and often lead to underperformance in your account.

While it may make sense to increase or decrease your risk tolerance at times, please don’t hesitate to consult a financial professional in order to make sure your investments are aligned with your goals and risk tolerance.

1 https://fortune.com/2019/07/29/there-have-been-two-times-in-history-stocks-have-been-this-expensive-1929-and-2000/

2 https://www.investing.com/indices

3 https://www.cnbc.com/2019/06/26/in-a-rare-occurrence-both-stock-and-bonds-are-having-a-great-year.html

4 https://www.usatoday.com/story/money/2019/07/30/federal-reserve-why-does-fed-lower-interest-rates/1861483001/

5 https://www.wsj.com/articles/why-the-fed-is-cutting-rates-when-the-economy-looks-good-11564392600

6 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20190731.htm

7 https://www.wsj.com/articles/jerome-powells-off-the-cuff-approach-leaves-investors-on-edge-11564995600

8 https://www.cnbc.com/2019/07/02/imfs-christine-lagarde-nominated-for-top-job-at-european-central-bank.html

9 https://www.cnbc.com/2019/07/23/boris-johnson-who-is-the-new-uk-pm.html

10 https://www.foxbusiness.com/economy/us-china-trade-war-timeline-latest-stock-reaction

"When interest rates are low, it means that it is cheaper to borrow money (For example, taking out a car loan is more appealing at 2% than at 10%). The reason for low rates is to stimulate the economy and encourage consumer spending."

"The Fed announced a 0.25% decrease of interest rates to a target range of 2.00 – 2.25%.6 This is the first decrease since December of 2008."

"The ECB is the central bank of the 19 European Union countries that have adopted the euro."

Market Commentary | June 2019

Fri, 05 Jul 2019 16:53:56 GMT

PERFORMANCE RECAP

Market Volatility Returns – but don’t let your emotions lead to bad decisions

The S&P 500 fell 2.6% during the last trading week of May as economic data remained bleak and threats of tariffs on Mexico over immigration became a real possibility. Overall, the S&P 500 was down over 6.5% during the month of May. This finished off the worst month for the markets since December of 2018 when the S&P 500 was down just over 9%. However, the good news is that some of the best days of the market can sometimes come shortly after some of the worst. The bad news is that if you are lucky enough to miss the worst days, you

will probably also miss the best days. To show evidence of this in recent months, January of 2019 saw the S&P 500 rise 7.87% rebounding after a rough December, and most recently, the S&P 500 finished up 6.89% in June of 2019 after a rough May. June’s performance was the best for the S&P 500 since January of 2019 Similar volatility occurred with both the DJIA 30 and the NASDAQ. The DJIA was down 8.66% in December of 2018 and down 6.69% in May of 2019 but was up 7.17% in January of 2019 and 7.19% in June of 2019. The NASDAQ was down 9.48% in December of 2018 and down 7.93% in May of 2019 but was up 9.74% in January of 2019 and up 7.42% in June of 2019. 1 We bring these four months to your attention as many are fearful of the volatility and possible talks of a recession later in 2019 or in 2020. Often the average investor will trade on emotion after these rough performing months and proceed to miss out on the potential upside that follows. While the previously mentioned examples are not always the case, we want to take a longer-term view of the market and emphasize the importance of staying disciplined based on your initial asset allocation. The below chart shows the effect of being out of the market during some of its better performing days. Those days frequently occurred shortly following some of its worst performing days. The chart is shown over a 20-year time frame, but it is still important to remember these concepts on a yearly basis as shown by December of 2018 through June of 2019.

CURRENT EVENTS

The June Fed Meeting

The Federal Reserve (Fed) usually lowers rates to stimulate economic growth. These lower rates encourage borrowing which in turn leads to more investing. In simple terms, and we are sure this will be discussed more in depth in further commentaries, if the Fed sees data points that show a weakening economy, they may potentially cut rates.

During the Fed’s most recent meeting in June, they decided not to reduce their benchmark interest rate. It will remain at 2.35%, with a range of 2.25% to 2.50%. 2 A rate cut in the next meeting is not a foregone conclusion either, but there is potential. The Federal Open Market Committee (FOMC) claims the current economic data points do not support a rate cut, but it does expect the economic climate to change in the next few months, possibly for the worse. However, the FOMC wants these uncertainties to become clearer before adjusting policy. 3 While it is not specifically stated, it is likely that these uncertainties mean slowing global growth and international trade risks.

Trade Talks

Trade negotiations with China seem to be the biggest concern on everyone’s mind, and we will get to that in a moment. First, we want to remind everyone that there was a short-term tiff with our neighbor to the south. As mentioned earlier, potential tariffs being placed on Mexican goods caused a sharp downturn in the markets to end May. However, as quickly as the tariffs became possible, an agreement was reached, and they were “indefinitely suspended” according to a tweet from President Donald Trump. 4 This caused a 4.5% increase for the S&P 500 during the first week in June rebounding off the 2.6% decrease that ended May. 1 We mention this to show you the amount of volatility in the market that can be caused by trade talks and how quickly it can reverse. Once again, we emphasize the importance of avoiding emotional investment decisions based on short term volatility.

Negotiations with China have their own set of consequences and for a while, there did not look to be a good solution in sight. However, during the recent G20 summit in Japan on June 28th and 29th, after meeting with Chinese President Xi Jinping, Trump decided to relax limits on Huawei (Chinese telecommunications giant) and delay new tariffs on Chinese goods. The U.S. agreed to hold off on imposing new tariffs on $300 billion in Chinese goods, although existing tariffs on $250 billion of imports remain in place. The reason behind the decision is still up for debate and there are people on both sides of the fence. Regardless of the reasoning, the S&P 500 opened the day up on July 1st as investors purchased some riskier holdings 5 , but the overall conclusion remains to be seen. The same issues that have plagued negotiators for months are still evident but as of June 29th, negotiations between the world’s two biggest economies will continue as Trump and Xi agreed to restart trade talks.

OUTLOOK

Can the expansion continue?

As of July 1st, 2019, the current economic expansion is ten years and one day old.

It is the longest in United States history, but not necessarily the best. The expansions in the 1960s, 1970s, and 1990s, were all better in terms of total growth and the pace of that growth. They each also had something in common that the current expansion does not. The previous expansions all had to do with major shifts towards more free markets in at least one area of public policy. For example, in the 1980s, the federal government cut income tax rates across the board. However, the current expansion began in June of 2009 despite tax hikes and more regulation. 6

In recent years, policy direction has finally shifted pro-growth with large cuts in corporate tax rates and deregulation among other things. The US economy responded well with growth increasing in 2017 and 2018, and 2019 is on track for another year of growth in 2019. With tax rates having been reduced, regulatory policy still heading in a better direction, and monetary policy being less restrictive, we don’t see the growth coming to a slowdown anytime soon.

Flashy news headlines can tempt one to make knee-jerk decisions but sticking to a strategy and maintaining a portfolio consistent with your goals and risk tolerance is imperative for long-term success. Including a broad mixture of asset classes can help with achieving more consistent long-term results, smoothing the short-term market noise and making it easier to weather these common volatility storms.

1 https://www.investing.com/indices

2 https://www.federalreserve.gov/monetarypolicy/files/monetary20190619a1.pdf

3 https://www.magnifymoney.com/blog/news/fed-meeting/

4 https://twitter.com/realDonaldTrump/status/1137155056044826626

5 https://abcnews.go.com/Business/wireStory/stocks-open-july-rally-us-china-trade-talks-64062164

6 https://www.ftportfolios.com/Commentary/EconomicResearch/2019/7/1/the-longest-expansion

"During the Fed’s most recent meeting in June, they decided not to reduce their benchmark interest rate. It will remain at 2.35%, with a range of 2.25% to 2.50%."

"During the recent G20 summit in Japan on June 28th and 29th, after meeting with Chinese President Xi Jinping, Trump decided to relax limits on Huawei (Chinese telecommunications giant) and delay new tariffs on Chinese goods."

changepath_adviser_recruiting_page

Market Commentary | November 2021

November was a dizzying month for investors.

November 2021 Market Returns ﻿

Markets

The Fed and the Economy

Your Next Move

Market Commentary | October 2021

﻿ THE VIRUS

THE ECONOMY

INFLATION

CONCLUSION

Market Commentary | September 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

THE VIRUS

THE ECONOMY

CAPITAL HILL AND THE FED

CONCLUSION

Market Commentary | August 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

THE ECONOMY

CONCLUSION

Market Commentary | July 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

THE DELTA VARIANT

CONGRESS

ECONOMIC DATA

INFLATION AND THE FED

CONCLUSION

Market Commentary | June 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

THE ECONOMY ﻿

FISCAL POLICY

GDP

MONETARY POLICY

CONCLUSION

Market Commentary | April 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

THE ECONOMY

CONCLUSION

Market Commentary | May 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

EARNINGS

THE ECONOMY

THE FED

CONCLUSION

Market Commentary | March 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

THE ECONOMY

THE VIRUS

POLICY RESPONSE

CONCLUSION

Market Commentary | February 2021

THE MARKET

IMPACT OF THE ELECTION AND THE VIRUS

CONCLUSION

THE MARKET

THE VIRUS AND THE ECONOMY

CONCLUSION

November 2021 Market Returns

THE VIRUS

THE ECONOMY