June 6, 2020
I will start with – Retirement Information
What is the SECURE Act?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed into law December 2019 and includes many reforms expanding access to workplace retirement plans for millions of full-and part-time workers, particularly small business employees. It also increases the age for required minimum distributions (RMDs) leaving more time for individuals to reach their savings goals.
When will the changes become effective?
Many of these changes are effective as of January 1, 2020.
Required Minimum Distribution (RMD) Impacts:
The law increases the age at which an individual must begin taking required minimum distributions (RMDs) from 70½ to 72. This will allow Americans to continue their retirement savings for an extended period of time.
• This change applies to individuals who will attain 70½ on or after January 1, 2020.
• If you turned 70½ in 2019 you are still responsible for satisfying your RMD for 2019 and all future years.
Market Information
Friday’s jobs report shocked investors with the addition of 2.5 million jobs and a sharply lower-than-expected unemployment rate of 13.3%. It is a sign that we are going back to work. The Dow, S&P500 and Nasdaq surged by 3.2%, 2.6% and 2.1%, respectively. All three Major Indices notched their third consecutive weekly win for the first time since December 2019. The Dow Jones Industrial Index, as of Friday’s close, finally crossed above the 200-day moving average. Now the Dow, S&P 500, NASDAQ, S&P 400 and the S&P 600 are all above their 200-day moving averages. Another bullish indication this week is that the NASDAQ Composite had a “golden cross”. A golden cross occurs when the 50-day moving average crosses above the 200-day moving average.
In recent days, the most beaten down sectors such as Airlines, Hospitality, and Energy stocks have begun to bounce back. Rotation often signals the end of a rally as money flows out of the winners and into losers. The markets are continuing to show strength, the question is how long will this rally last?
The VIX Index – has traded as down to 24.52. The VIX is still above average but continuing to fall. The fact that it is lower than last month is a positive sign.
Percent of stocks above their 50 day and 200 day moving average – 97% of stocks are above their 50-day moving average. 56% of the stocks are above their 200-day moving average compared to only 26% last month. Seeing more stocks moving above their 50-day moving average and now with over 50% above their 200-day is encouraging. Market strength has continued.
Federal Reserve – The next FOMC meeting is on June 9, 2020.
Unemployment Rate – On June 5th the U.S. Bureau of Labor Statistics reported unemployment rate dropped to 13.3 percent.
Inflation Rate – The annual inflation rate for the United States is 0.3% for the 12 months ended April 2020 as compared to 1.5% previously, according to U.S. Labor Department data published on May 12, 2020.
Conclusion – VIX Index needs to continue to fall, the percent of stocks above their 200-day moving average needs to continue to rise, the unemployed workers need to continue to go back to work and the virus numbers need to continue to decline.
In this month’s recap: stocks rallied in May, sparked by a supportive Federal Reserve, stories of states re-opening, and reported progress on a COVID-19 vaccine.
Monthly Economic Update
Presented by Guy Woolley, June 2020
U.S. Markets
Stocks rallied in May, sparked by a supportive Federal Reserve, stories of states re-opening, and reported progress on a COVID-19 vaccine. The Dow Jones Industrial Average rose 4.2%, while the Standard & Poor’s 500 Index picked up 4.5%. The NASDAQ Composite led, gaining 6.7%.1
Shift in Focus
April’s positive momentum continued into May, as stocks registered healthy gains, and investors looked to future economic hopes rather than current woes. Further aiding stocks was a better-than-expected jobs report and firming oil prices. Many investors breathed a sigh of relief on the news that U.S. and Chinese negotiators were planning to meet, despite the rising tensions between the two nations.
Fed’s Commitment
Stocks rallied, as hopes for a COVID-19 vaccine rose, and the Federal Reserve restated its commitment to do whatever would be necessary to support an economic recovery. Following Memorial Day weekend, stocks surged, once again, due to rising optimism over economic re-opening, reported declines in new COVID-19 cases, and further news surrounding the development of a potential vaccine.
Sector Scorecard
The majority of industry sectors moved higher in May, with increases in Communication Services (+11.54%), Consumer Discretionary (+7.79%), Energy (+7.63% Financials (+4.23%), Health Care (+2.26%), Industrials (+5.93%), Materials (+6.33%), Real Estate (+2.29%), Technology (+9.69%), and Utilities (+0.14%). Consumer Staples experienced a small loss (-0.07%).2
What Investors May Be Talking About in June
In some sense, many investors believe a sustained and complete economic recovery may rest upon developing a vaccine for COVID-19.
Vaccine Watch
The World Health Organization reports that there are more than 100 vaccine candidates, with 10 currently participating in clinical trials.3 Over the next couple months, results from several of these trials may be released.4,5 Depending on the results, the trials could provide the markets with a sense of optimism. If they prove disappointing, investors may dread the prospect of a prolonged economic recovery. Either way, many investors are cautiously monitoring the situation for further developments.
T I P O F T H E M O N T H
Updating your will is as important as having one. If you drafted a will years ago, it may likely need some adjustments. Revisit your will often and keep it up to date.
World Markets
World markets posted solid gains on economic recovery hopes, with the MSCI-EAFE Index rising 5.15%.6 European markets moved higher, with gains in France, Germany, and the Netherlands. The U.K. slipped 0.88%.7 Pacific Rim stocks were mixed, with advances in Australia (+5.37%) and Japan (+8.34%). Hong Kong dropped 6.83% due to China-related tensions. The volatile Merval Index, which tracks the largest companies based in Argentina, jumped 48.04%.8
Indicators
Gross Domestic Product: The economy shrunk at a 5.0% annual rate, higher than the initial estimate of 4.8%.9
Employment: The unemployment rate leaped to 14.7%, as nonfarm payrolls fell by 20.5 million. The unemployment rate was the highest seen since the Great Depression.10
Retail Sales: Retail sales plunged by 16.4%, with every sector lower except for non-store retailers, which are predominately Internet-based merchants.11
Industrial Production: Industrial production fell 11.2%, the largest one-month drop in the index’s 100-plus-year history.12
Housing: Housing starts declined 30.2% to their lowest level seen since 2015.13
Existing home sales tumbled 17.8% in April, which was the largest one-month drop since July 2010. The supply of homes declined 19.7%. Tightening inventories led to a new record high in the median home sales price ($286,800).14 Sales of new homes rose 0.6%, a surprise increase amid a consensus forecast of a nearly 22% drop.15
Consumer Price Index: The price of consumer goods posted its largest monthly drop since 2008, falling 0.8% in April. Excluding the more volatile food and energy sectors, core inflation declined 0.4%, the largest monthly drop since 1957.16
Durable Goods Orders: Orders of long-lasting goods dropped 17.2%, with demand for transportation equipment falling an eye-catching 47.3%.17
Q U O T E O F T H E M O N T H
“The older I get, the smarter my father seems to get.”
Tim RUSSERT
The Fed
Minutes from the last Federal Open Market Committee meeting reaffirmed a commitment to maintaining a zero-interest rate policy until inflation reaches the Fed’s 2% target, and unemployment returns to its pre-COVID-19 level. The Committee also focused on how they expect to use upcoming meetings to communicate about future policy decisions. The minutes also reinforced recent comments that the Fed was not inclined to move toward negative rates.18
| MARKET INDEX | Y-T-D CHANGE | May 2020 |
| DJIA | -11.06% | 4.26% |
| NASDAQ | 5.76% | 6.75% |
| S&P 500 | -5.77% | 4.53% |
| BOND YIELD | Y-T-D | May 2020 |
| 10 YR TREASURY | -1.27% | 0.65% |
Sources: Yahoo Finance, May 31, 2020
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
T H E M O N T H L Y R I D D L E
Here’s a food riddle. Someone strips away the outside of this food, leaving you free to boil, cook, or grill the inside. (So, what was the “inside” is now an uncovered outside.) You eat the new outside and throw away the inside of that. What food are you eating?
LAST MONTH’S RIDDLE: Its teeth are sharp, and its spine is straight. It is not innately vicious, it does not hunt, but to cut things up is definitely its fate. What is it?
ANSWER: A saw.
Guy Woolley may be reached at 415-236-5364 or guy@freedomcapitalmanagement.com
www.freedomcapitalmanagement.com
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Disclosure
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong stock exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile & Futures Exchange. The IPC index measure of companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 index is an index of stocks listed on the Australian Securities Exchange The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French stock market index. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
CITATIONS:
1 – The Wall Street Journal, May 31, 2020
2 – FactSet Research, May 31, 2020
3 – Who.int, May 27, 2020
4 – CNBC.com, May 13, 2020
5 – NBCnews.com, May 8, 2020
6 – MSCI.com, May 31, 2020
7 – MSCI.com, May 31, 2020
8 – MSCI.com, May 31, 2020
9 – The Wall Street Journal, May 28, 2020
10 – The Wall Street Journal, May 8, 2020
11 – The Wall Street Journal, May 15, 2020
12 – The Wall Street Journal, May 15, 2020
13 – CNBC.com, May 19, 2020
14 – CNBC.com, May 21, 2020
15 – CNBC.com, May 26, 2020
16 – The Wall Street Journal, May 12, 2020
17 – CNBC.com, May 28, 2020
18 – The Wall Street Journal, May 20, 2020