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No one expected the longest bull market in history to see its demise brought on by a virus. While U.S. equity markets were able to withstand a trade war with China, a presidential impeachment, the potential for a global recession and global uncertainty including Brexit and civil wars in the Middle East, the U.S. economy was ambushed by a silent and highly contagious virus.

The first three months of 2020 were filled with Covid-19 fears and economic responses. The world is experiencing a pandemic and a financial crisis that caused many investors to feel a level of anxiety that they have not had for over a decade. It’s almost impossible to remember that in Mid-February, equity markets were experiencing all-time, record highs. Now, we are in an unprecedented, event-driven bear market.

In the first quarter of 2020, more specifically, on March 12, the longest bull market in the history of the S&P 500 ended. This was the worst quarter for the Dow Jones Industrial Average (DJIA) since 1987 and its poorest first three-month start to the year ever.

The Dow Jones Industrial Average’s decline of 23.2% for the quarter was its biggest since the 25.3% drop seen during the fourth quarter of 1987. The S&P 500 posted a 20% decline. Prior to this waterfall downturn, the stock market seemed unstoppable, with both the 122-year-old DJIA and the S&P 500 quadrupling earlier this year from their March 2009 lows. Many investors who remained vigilant and held their positions during that time were generously rewarded. In just a few weeks, the stock market experienced several firsts in its history including:

• In less than three weeks, the S&P 500 fell from a 52-week high to a 52-week low.
• The Bloomberg Barclays U.S. Corporate Bond Index lost more than 7% in a week.
• The New York Stock Exchange (NYSE) experienced its worst set of down days where 90% or more of NYSE-traded stocks closed lower for the day.
• The S&P 500 hit the circuit breaker and triggered a trading halt four times.
• The Nasdaq Composite Index suffered its largest one-day percentage decline ever.
• The Dow Jones Industrial Average posted its biggest weekly gain since 1938.

(Sources: marketwatch.com 3/16/20, WSJ 3/27/2020)

An 11-year bull market has changed into one of the quickest bear markets of all-times. Not only is the world trying to stop the spread of a highly contagious virus, but it is also scrambling to fix the disruption of global supply chains and the decline of consumer demand.

Interest Rates Are Still in the Spotlight

After lowering the federal funds rate by a half-point to a range of 1.0% to 1.25% in between its regularly scheduled meetings, as a response to the risks the COVID-19 coronavirus outbreak was creating, the Federal Reserve cut its benchmark interest rate in mid-March by a full 1% to 0%-0.25%. When the Fed first started reducing interest rates, many experts noted that the central bank was “catching up” to where markets had headed. Now, it seems as if they are responding to both the economy and the fact that the 10-year Treasury had fallen to all-time lows.

The all-time low for the Fed Funds Rate is effectively zero. The Fed has only lowered their rate to a range of 0% to 0.25% twice: once during the financial crisis of 2008 and now in March of 2020. (Source: The Balance, 3/30/20)

CNBC reported on April 1st that the, “10-year Treasury yield falls to 0.6% as the coronavirus crisis deepens.” With interest rates at or near all-time lows, many investors cannot generate income or meet their long-term goals with a full portfolio of cash and bonds. (Source: CNBC, 4/1/20)

Oil Prices

Oil prices suffered an extremely rough stretch this quarter. As if things were not bad enough, the oil price war between Saudi Arabia and Russia, which emerged suddenly and dramatically on March 7, compounded the already ultra-bearish demand backdrop. The Saudi Arabia and Russia oil price war resulted in a massive price drop on March 8, 2020, when U.S. oil prices fell by 34% and crude oil fell by 26%. (Source: CNN.com; 3/8/2020)

The Coronavirus’ impact on oil consumption is unlike anything in modern history. Governments continue to impose flight restrictions and other travel bans, enforce lockdowns, and require non-essential businesses to close doors. Numerous school closures also mean many fewer buses and cars will be on the roads. As the quarter closed, there was pressure on the president to step in and assist in resolving the price war. Oil prices saw the worst month and quarter in oil price history down over 50%. With energy companies and oil still being a contributing factor to the overall economy, oil prices are a topic we are keeping a watchful eye on. (Source: Washington Post, 4/2/20)

The CARES Act

The government is trying to help businesses and prevent the threat of a recession through the $2.2 trillion-dollar Coronavirus Aid, Relief, and Economic Security (CARES) Act. This emergency relief package, the largest economic-relief package in U.S. history, included: Extensions of unemployment benefits, $150B for state and local governments, $500B in general corporate aid, $350B in small-business loans that will be facilitated by community banks, $100B for the healthcare system and Direct payments to individuals: Individuals can receive up to a maximum of $1,200 per person ($2,400 per couple) depending upon their income.

The estimates for the total monetary and fiscal output to manage this crisis is $4 trillion, according to Jurrien Timmer, Director of Global Macro for Fidelity Management and Research Company. So far there is a strong response from the U.S. Government, which will need time to see if it produces results. (Source: fidelity.com, 3/23/20)

A Brief Lesson in Some Market Terms

Oftentimes, we hear the wrong words used in the wrong context. For educational purposes, we feel it is important to clarify some stock market words and their definitions.

“Dip” – a short-lived downturn from a sustained longer-term uptrend.

“Correction” – a 10% drop in the market from recent highs. Historically corrections occur an average of about every eight to 12 months and last about 54 days. (Source:thebalance.com 3/9/20)

“Bear Market” – a long, sustained decline in the stock market. If the market declines 20% from the its recent high, this is considered the start of a bear market.

“Crash” – a sudden and dramatic drop in stock prices, often on a single day or week. Crashes are rare, but typically happen after a long-term uptrend in the market.

Bear Market Basics

Bear Market’s Most Basic Principle: Bear markets are a part of the investing experience. Many people believe that a bull market means a steady growth in equities. This is not the case. During this most recent, long-standing bull market, there were 13 corrections and the market moved down intraday into bear market territory (down at least 20%) three times. (Source: www.fidelity.com)

We have now entered into a bear market territory (a close of 20% down) so it might be helpful to review some information about bear markets.

Bear markets can be classified into one of three categories: structural; cyclical; and event-driven.
Goldman Sachs analyzed bear markets back to 1835. They defined these three markets as follows:

1. Structural: bear markets created by imbalances and financial bubbles, very often followed by a price shock such as deflation. The markets have an average drop of 57%.
2. Cyclical: bear markets that are typically a function of the economic cycle, marked by rising interest rates, impending recessions and falls in profits. These markets have an average drop of 31%.
3. Event-driven: bear markets created by events such as war, an oil price shock, an emerging-market crisis, or like most recently, a sudden viral pandemic (Covid-19).
   We are currently in an “event-driven” bear market. These are the bear markets that are hardest if not impossible to forecast or navigate. Covid-19 created a first of its kind bear market, one that was caused by a virus. We have had event-driven bear markets, but none were created by a viral pandemic. According to Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer, “event-driven ” bear markets, on average, result in lower declines than the other two types, and historically have lasted shorter. This unusual downturn is one that offers no easy outcomes. (Source: marketwatch.com 3/11/20)

How should investors think about this downturn and what should they do?

Investors generally hope that equity markets will go up. The volatility and turbulence of this current economic and political environment has caused even some of the most seasoned investors to become skittish. In March, legendary investor Warren Buffett said that he hadn’t seen anything like the coronavirus pandemic. “If you stick around long enough, you’ll see everything in markets,” he told Yahoo Finance. “And it may have taken me to 89 years of age to throw this one into the experience.”

Since that statement, it’s become even more confusing as infections mount around the world and the stock market continues to spin out of control in both directions. Many investors are trying to compare their portfolio’s performance during this difficult period. So how did the Berkshire Hathaway leader perform?

“While Buffett is well known for weathering the worst market downturns and coming out stronger, the last several weeks have been just as painful on his portfolio as it has on the broader market,” Bespoke explained in a post noting that the average stocks in his top holdings on March 24th were down 37% from their February highs. Perhaps the most important thing to think about is that like everybody else, his portfolio obviously hasn’t been immune to all this volatility. (Source: MarketWatch.com, 3/27/20)

The chart in this report shares that the six biggest point declines and the six biggest point increases in the Dow Jones Industrial Average (DJIA) all came in the last five weeks of this quarter. On March 12th, the DJIA fell 2,352 points which was over 9%. Had you sold that day you missed the next day’s (March 13th) rise of 1,985, also a move of over 9%. This level of volatility is unprecedented and therefore even the savviest of investors needs to PROCEED WITH CAUTION!

Helpful Strategies for Investors

Revisit Your Personal Objectives — First and foremost, we continue to urge you to ask yourself four questions:

1. Have my financial timelines changed?
2. Have my financial goals changed?
3. Has my risk tolerance changed?
4. Are there any changes my advisor needs to know about my situation?

Think Long-Term — Investing involves uncertainty and therefore investors should consider using long time horizons.

Look into Rebalancing — Maintaining a properly designed and well-diversified portfolio is important. Now is a good time to take a look at your portfolio and consider any rebalancing that may need to be performed.

Suspend Distributions — If you are comfortable with suspending distributions and looking for a potentially better time to take them, please call us at we can see if this strategy works for your personal situation.

Consider Roth IRA Conversions — There are many reasons to consider Roth IRA conversions. For many retirement accounts with equities, account values are down. This can create opportunities, especially for those investors currently in the 12%, 22% and 24% tax brackets. Add in the new SECURE Act’s changes to inherited IRAs and it becomes even more prudent to consider the pros and cons of a Roth IRA conversion. Roth Conversions have some complicated rules and guidelines, therefore, as always, first discuss this option with us and your tax preparer to see if they are a good fit for your financial goals.

Think Rationally, Not Emotionally — One of Sir John Templeton’s “Rule’s for Investment Success” is, “Do not be fearful or negative too often.” Market turbulence should remind us that it is a good idea to re-evaluate instead of panic.

Tune Out Media Magnification and Seek the Help of a Professional — One of our primary goals is to make sure you are comfortable with your investments. We will always consider your feelings about risk and the markets and review your unique financial situation when making recommendations.

We pride ourselves in offering:

• consistent and strong communication,
• a schedule of regular client meetings, and
• continuing education for every member of our team on the issues that affect our clients.

A skilled financial professional can help make your journey easier. We care about our clients and we are here for you. Our goal is to be prepared, not scared! If you feel we need to talk, please call. We are honored that you have chosen us to help with your financial needs.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.

All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Diversification is used to help manage investment risk; it does not guarantee a profit or protect against investment loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. Sources: Barron’s, marketwatch.com; washingtonpost.com; goldmansachs.com; politio.com; fidelity.com; cnn.com; forbes.com. Contents provided by the Academy of Preferred Financial Advisors, Inc.

The post Economic Update: First Quarter 2020 appeared first on Financial 1 Tax.

During the first three months of 2019, investors had a lot to cheer about as U.S. equity markets turned in their best quarterly gains in nearly a decade. This helped many of the major indexes to recoup a good portion of the losses that they suffered in the final months of 2018.

For the quarter, the S&P index rose slightly over 13%, marking its best start to a year since 1998. The Dow Jones Industrial Average (DJIA) advanced an equally impressive higher than 11% for the quarter. Gains for the quarter were broad, and all eleven S&P 500 sectors ended higher for the quarter for the first time since 2004. (Sources: Barron’s 4/11/2019, Wall Street Journal 3/30-31/2019)

While many factors contribute to strong equity gains, analysts feel that much of the first quarter’s rally was fueled by investors reacting to central banks backing off their previous plan of interest rate hikes in favor of announcing they will not raise interest rates this year. Another major factor sighted as a reason behind the increase was the fact that many investors had stepped back into equities after the late 2018 selloff.

On Friday March 29th, the last business day of the quarter, the yield on a 10-year Treasury U. S. Note finished the day at 2.416%. This was well below its 2018 year-end 2.684% yield. The Wall Street Journal reported that for the quarter, yields, which fall as bond prices rise, had retreated around the world in the quarter’s last weeks. While some analysts are saying that the first quarter’s gain puts equity markets above their 2019 year-end projections, others are quick to point out that indexes are still below the all-time highs reached in 2018. (Source: Wall Street Journal 3/30-31/ 2019)

Global Economics

The new year brought investors a different result than the end of 2018, with equities and credit rallying strongly across the world. Analysts felt the sell-off in equities and credit in the final quarter of last year was triggered predominantly by concerns about; the potential for a heightening of the trade war between the US and China, worries that higher interest rates could hurt the US economy, and broader uncertainties about a slowdown in global growth.

For the first quarter and also moving forward, global worries kept many analysts in a state of concern. China, one of the world’s largest economies continues to slow. China is in the midst of a recession and according to the National Bureau of Statistics (NBS), Gross Domestic Product (GDP) grew by 6.4% compared to a year earlier, the weakest increase since Q1 2009. “Growth in China could plummet to 2 percent over the next decade — from the expected 6.0 to 6.5 percent target this year”, predicted Capital’s Chief Asia Economist Mark Williams at a conference in Singapore on March 5th. Williams added, “China’s time as an emerging markets outperformer is ending.” (Source: CNBC 3/6/2019)

Brexit, the United Kingdom (UK) leaving the European Union (EU), is another major concern for investors. The original vote to do this was in June of 2016 and it had a deadline of March 2019. A delay has pushed this deadline into the second quarter, so at the end of the first quarter (which is when this report was written) Brexit is another source of uncertainty.

Is the global slowdown a problem or only a pause? Global economies are important to equity markets and so they are something that investors will have to watch carefully in the months ahead.

Interest Rates are Still Critical

During the Federal Reserve’s March two-day meeting, after evaluating the health of the U.S. economy, as expected, interest rates remained unchanged. After Chairman Jerome Powell and other senior Fed officials reexamined old assumptions for inflation, they cited, “stubbornly low inflation” as the chief reason for shifting its direction from its earlier plans to raise the key interest rate that influences the cost of borrowing for businesses and consumers.

“We are almost 10 years deep into this expansion and inflation is still not clearly meeting our target,” Powell said in a press conference following the March meeting. He added, “we are being patient” and, “if your models are not working, take a wait-and-see approach.” (Source: MarketWatch 3/20/ 2019)

Investors now know that the central bank wants to see more evidence — clear and overwhelming evidence — that inflation is really heating up before it raises interest rates again. The Fed’s current benchmark interest rate is at a range of 2.25% to 2.5%, which is up from near zero as recently as 2015. To help put that in perspective, the current rate is still quite low by historical standards.

U.S. Economic Outlook

One of the most critical data points for the U.S. economy is Gross Domestic Product, or GDP. This rate, which measures the growth of the U. S. economy is expected to stay between 2% and 3% for 2019. The Federal Open Market Committee at their March 21st meeting forecasted that the U.S. GDP’s growth will slow down from 3% in 2018 to 2.1% in 2019. They also indicated that it is predicted to be 1.9% in 2020 and 1.8% in 2021. (Source: The Balance 3/29/ 2019)

The Bureau of Labor Statistics has projected that the U.S. unemployment rate will be 3.7% in 2019. They feel that it will increase to 3.9% in 2021. (Source: The Balance 3/29/ 2019)

A weaker housing market and rising oil prices can put further pressure on the overall U.S. economy. Although it is facing some challenges, the U.S. economy is still the largest and most important in the world. The U.S. economy represents about 20% of total global output and it is still larger than China’s economy. (Source: Focus Economics 3/26/ 2019)

Bloomberg reports that, “concerns that a recession is coming are rising, with a quarter of all economists saying that a slump is possible in the next 12 months.” Are we headed for a recession? If so, what does that really mean. (Source: Bloomberg 4/4/ 2019)

Recession

After several years of growth, analysts and reporters on nightly news and television stations are now cautioning that the United States might be headed for a recession within the next year. “The global economy is highly likely” to go into a recession if the U.S. and China don’t reach a trade deal within three months, Moody’s Analytics Chief Economist Mark Zandi said on CNBC on April 2nd. (Source: CNBC 4/2/ 2019)

For many, the word recession sounds scary and we defined what a recession is in the following box. Recessions can be mild, moderate or severe. The fact that the business cycle is receding does not necessarily mean it will reduce to dangerous levels. However, investors still need to prepare.

Even though recessions can be short-term events, there can be longer term consequences from a period of economic downturn. For example, higher unemployment can mean that those people concerned or effected might be forced to delay or stop saving for buying a home, pursuing educational opportunities, or taking vacations. Businesses also can be affected by recessions, because as consumers reduce or cut their spending, small business profits start to decline and large companies may put off investing in new ventures or expansion.

Recessions can affect large companies by reducing their revenues and earnings which in return could cause their stock prices to go down. While recessions are a normal part of the business cycle, there is no perfect way to predict how and when a recession will occur or how long it will last. Whether we are headed for a slowdown or a recession, one thing that can be helpful to investors is to talk with their advisors about their investment timeframes and risk tolerances to make sure they are aligned with their investments.

Conclusion: What should an investor consider?

With the recent rise in financial markets, the slowdown in global growth, and Federal Reserve Chair Jerome Powell now stressing a much more patient approach to monetary policy, investors need to once again proceed with caution. Completely avoiding market risk may not be appropriate for most investors because today’s traditional fixed rates might not help you achieve your desired goals. Most investors are still attempting to build a plan that includes risk awareness. Often, this can lead to safer but lower returns. Traditionally, bonds have been a nice hedge against market risk, but with interest rates still low, investors must continue to be extremely cautious. With rates still historically low, fixed rates may not be the best solution for investors that want returns. Looking at your entire picture can be a helpful exercise in determining your strategy.

We focus on your personal objectives and strategy.

During confusing times, it is always wise to create realistic time horizons and return expectations for your own personal situation and to adjust your investments accordingly. We try to understand your personal commitments, so we can categorize your investments into near- term, short- term and longer-term.

Make sure you understand your risk/reward level.

Many investors use a risk/reward ratio to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns. In economics, you operate with the assumption that the greater the risk an investor takes, the greater the reward they will receive, if and only if the investment makes money. On the other hand, if an investor only takes a small risk, they are more likely to earn a small reward.

If you have concerns about your portfolio, then call us or bring them up at our next meeting.

Discuss any concerns with us.

Our advice is not one-size-fits-all. We will always consider your feelings about risk and the markets and review your unique financial situation when making recommendations. If you would like to revisit your specific holdings or risk tolerance, please call our office or bring it up at our next scheduled meeting.

We pride ourselves in offering:

A skilled financial advisor can help make your journey easier.

Our goal is to understand your needs and then try to create a plan to address those needs. We continually monitor your portfolio. While we cannot control financial markets or interest rates, we keep a watchful eye on them. No one can predict the future with complete accuracy, so we keep the lines of communication open with you. Our primary objective is to take the emotions out of investing. We can discuss your specific situation at your next review meeting or you can call to schedule an appointment. As always, we appreciate the opportunity to assist you with your financial matters.

Help us grow!

This year, one of our goals is to offer our services to several other people just like you! Many of our best relationships have come from introductions from our clients. Do you know someone who could benefit from our services?

We would be honored if you would:

Add a name to our mailing list, bring a guest to a workshop, or have someone come in for a complimentary financial checkup.

Please call Financial 1 Wealth Management Group at 410-908-9293 and we would be happy to assist you!

If you are currently not a client of Financial 1 Wealth Management Group, we would like to offer you a complimentary, one- hour, consultation with one of our professionals. Please call 410.908.9293.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. Sources: Forbes, Fortune, MarketWatch, Wall Street Journal, Oppenheimer Funds, Investopedia, Barron’s

The post Quarterly Economic Update 2019 appeared first on Financial 1 Tax.