Last week confirmed that we’re now traveling together through the third once-in-a-century market event in the 21st century’s first two decades.  On Monday the Standard & Poor’s 500 index tumbled 12%, breaking through the now-familiar stock exchange circuit breakers.  Traders have, for a long time, called Tuesdays Turnaround Tuesday, and last Tuesday, March 17,  brought a ray of hope as the index gained 6%.  In any other market environment, this would be considered a remarkable one-day gain.

Then the roof caved in again.

Wednesday saw the S&P 500 drop 5.18%, followed by a small 0.47% gain, and then, on Friday, another 4.34% loss.  Just a month ago, the index was recording all-time highs.  Now we have experienced two of the worst market weeks since 2008.  And this week didn’t start on a positive note.

The reason that traders are running for the exits is, of course, the unpredictable course of the COVID-19 crisis.  You don’t have to be told how our social distancing lockdown is disrupting economic activity.  This is almost certainly the first time anyone in the X, Y, Z and Baby Boom generations has seen empty grocery aisles (flour, anyone?), shuttered restaurants and theaters, and empty corporate offices as people in all walks of life are told to work from home.  You can see the progress of the virus in various countries in the chart below.

You can view the real time movements of the disease in various dimensions on the fascinating Johns Hopkins and Medicine Coronavirus Resource Center website. There’s even a case in Greenland. (Do people even live there, where the country’s name is a marketing scheme?)

The bottom line is that the number of cases is still increasing dramatically, despite a near-lockdown of our society. What I haven’t seen reported in many places is the number of recoveries (100,885 as of yesterday; higher when you read this), which the Johns Hopkins site shows prominently on its homepage. It’s a little bit of good news that gets neglected in reporting how bad things are.

The federal government has not been completely inactive during the crisis.

You already know that the Federal Reserve Board has dropped its rates to near zero in order to make it easier for banks to lend money to corporations.  More recently the Fed has pledged to reinstate its Quantitative Easing program, which means (for now) buying at least $500 billion of Treasury bonds and $200 billion of mortgage-backed securities.  This can be seen as an attempt to drive down interest rates and inject liquidity into the financial system. The Fed has said that, in essence, it will do whatever it takes. That’s the monetary policy side.

Since monetary policy is often like pushing on a string (do I really need a new loan?), what we’re waiting for now is fiscal policy, the government spending side of things. This could include policies like sending checks to every household or it could include programs that might strengthen our nation for the future, like a massive health care project. As of this writing, Congress is working on something that both sides of the aisle can agree on.

Meanwhile, the Internal Revenue Service has scrambled to provide relief of its own, extending the date that people have to file their tax returns from April 15 to July 15.  The deadline for making contributions to an IRA, Roth IRA and Health Savings Account have also been extended to July 15, but right now nobody seems to know whether people filing for an extension will have to file six months from April 15 or July 15.

Another area of confusion: people who are required to make quarterly estimated payments have seen their April 15 due date extended to July 15, but the second quarter estimated payment is still, as of this this writing, due on June 15.

Are there any strategies to deal with situations like this?

If you have a year’s worth of your expenses set aside in cash, then you have the means to simply live out the downturn without locking in the losses the market has already delivered or new ones that may arise when the second quarter GDP numbers come in negative and the economists declare a recession.

While the cause is always different, in the past, markets have always recovered and gone on to new highs.  Moreover, companies are almost certainly not 30% less valuable today than they were in January, no matter what the market valuations are trying to tell us. If you must get out of investments, please, please, please, have a plan to get back in. To paraphrase Hans and Franz, from Saturday Night Live, “listen to me now; hear me later.”

The only time it will feel good enough to get back in is after markets have risen. You will miss out on part of the recovery.

LPL Financial, our broker-dealer, recently put out its “Road to Recovery Playbook,” which laid out some signals that might indicate the market is done declining. They are listed to the left, along with their current status.

More importantly, self-quarantining, working from home, avoiding physical contact with others and social distancing are clearly the best strategies to mitigate this epidemic, even if they are sometimes challenging.  Remember that something more important than money is at stake here: peoples’ lives, and the hospital system’s operational capacity.

Just as important is keeping your sanity.

Hard as it might be in these incredibly stressful times, recognize that, just like the plagues that ravaged the world in days of old, this one will pass.  Our hope is that you will take time to walk outside—with an appropriate distance from others—and look for ways to find joy every day.

Someday, it will be a remarkable story to tell your children or grandchildren, who will marvel at how tough we were that we could move ahead with our lives in difficult circumstances.  Please accept our prayers, best wishes, and help if and when you need it.

The post Where We Are Now appeared first on Strategence Capital.

You can text us now—and we can reply!  No, we didn’t just figure out how to use our texters.  Instead, we now have a compliance-approved texting application.  Unfortunately, you’ll have to use a different phone number, but it can be used for both texting and calling your advisor.

Our new cell phone numbers are as follows:

Tim Stoller – 419.500.0094

Graig Stettner – 260.236.8810

Jordan Arnold – 260.236.4472

Before we can send a you a text, you will need to consent to receive texts from us. We’ve included an example here, where a client sent a text, and the advisor is required to reply with the consent message. Once accepted, we’re all set to go; it’s a one-time deal.

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Just one month ago, there were few Google searches on the term “yield curve.” Now, they’ve skyrocketed, as one can see in the chart below.

A yield curve is a graphical representation of yields available for various maturities. Shown below is the U.S. Treasury yield curve (source: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us), but a yield curve is also available for your local bank’s CD rates—anywhere one can graph the relationship of yield to maturity.

Okay, so that’s the yield curve, but a similar Google search of “inverted yield curve” would look similar. So, what’s the big deal about an inverted yield curve; it sounds like toe nail + ingrown.

What does it mean when a yield curve is inverted?

The normal shape of a yield curve is positively sloped, with longer maturities yielding more than shorter maturities, to account for the increased uncertainty of holding a 30-year bond to holding a 2-year bond, and also to compensate for inflation. An inverted yield curve is one where, generally speaking, shorter maturities yield more than longer maturities. In the yield curve, above, there is a bit of inversion between two and ten-year Treasuries.

Now, why does this phenomenon strike fear in stock markets?

Simple, because an inverted yield curve has preceded the last seven recessions. As a timing indicator, however, the inverted yield curve is a pretty blunt instrument, as it may indicate a recession is more than two years away. It shouldn’t surprise you that a recession is coming. A recession has been coming since the recovery started in 2009. Also, as you probably know, the most expensive words for investors are this time it is different. Sometimes it is true and this time could be different (though I’m not saying it is).

Reasons to worry

• Recessions are bad for stocks
• The inverted yield curve indicator has a good track record

Reasons to worry less

• Recessions happen periodically. We have managed to get through them
• The sample size (seven recessions) is really small. It’s possible to flip heads or tails seven times in a row, too.

If you’re nervous about your investments, take a look at this LinkedIn post that has some suggestions for possible actions you can take.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. The economic forecasts set forth in this material may not develop as predicted.

The post What’s the Inverted Yield Curve? appeared first on Strategence Capital.

Blue – Economic Risks; Green – Environmental Risks; Orange – Geopolitical Risks; Red – Societal Risks; Purple – Technological Risks

Here is one that shows, on the horizontal axis, the likelihood of events (farther to the right…more likely) and the impact on the vertical axis (higher up…the greater the impact.) I started to highlight those likely to impact investors, such as asset bubbles, when I realized that almost all of these would have at least some impact investors, even if different than the vertical placement on the chart.

Here’s another. The chart below shows the interconnected-ness of several trends and their risks. You can see the size of the trends by the size of the…I don’t know what that is, an elongated diamond (?) at the edge, and how and where the trends interact.

Admittedly, almost everything in this report is a forecast, and they’re almost always wrong, but the report is interesting to contemplate. It’s available here.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Any economic forecasts set forth may not develop as predicted.

Blue – Economic Risks; Green – Environmental Risks; Orange – Geopolitical Risks; Red – Societal Risks; Purple – Technological Risks

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As of this writing, it appears that changes to 401(k) contributions are not off the table in Congress’s budget discussions, so these revised contribution limits may be subject to change—drastic change by some accounts.

The ability to contribute to a Roth IRA is dependent upon income. At a certain level, one’s ability is limited (the first figure in each pair, below), and at another level (the second figure), it is eliminated. The income phase-out range for taxpayers wishing to contribute to a Roth IRA was shifted up to $120,000 to $135,000 (from $118,000 to $133,000) for singles; for married couples filing jointly, the range is now $189,000 to $199,000 (from $186,000 to $196,000.)

The limit on annual IRA contributions was not changed. It remains $5,500, with a $1,000 catch-up available for savers over age 50.

You can see the IRS news release by clicking here.

https://www.irs.gov/newsroom/irs-announces-2018-pension-plan-limitations-401k-contribution-limit-increases-to-18500-for-2018

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On October 19, the The Internal Revenue Service announced new cost of living adjustments for some retirement plans. Most notably, perhaps, is the increase in the 401(k) annual contribution limit from $18,000 to $18,500 for savers under age 50. The catch-up amount for savers over 50 remained at $6,000, making a total limit for those savers of $24,500.

As of this writing, it appears that changes to 401(k) contributions are not off the table in Congress’s budget discussions, so these revised contribution limits may be subject to change—drastic change by some accounts.

The ability to contribute to a Roth IRA is dependent upon income. At a certain level, one’s ability is limited (the first figure in each pair, below), and at another level (the second figure), it is eliminated. The income phase-out range for taxpayers wishing to contribute to a Roth IRA was shifted up to $120,000 to $135,000 (from $118,000 to $133,000) for singles; for married couples filing jointly, the range is now $189,000 to $199,000 (from $186,000 to $196,000.)

The limit on annual IRA contributions was not changed. It remains $5,500, with a $1,000 catch-up available for savers over age 50.

You can see the IRS news release by clicking here.

https://www.irs.gov/newsroom/irs-announces-2018-pension-plan-limitations-401k-contribution-limit-increases-to-18500-for-2018

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