W.P. "Bill" Atkinson, III

Certified Financial Planner TM / Attorney

Access Financial Resources, Inc.

3621 NW 63rd Street, Suite A1

Oklahoma City, OK  73116

(405) 848-9826

www.afradvice.com / bill@apaplans.com

July 2020
Market Update
(all values as of 12.31.2020)

Stock Indices:

Dow Jones 30,606
S&P 500 3,756
Nasdaq 12,888

Bond Sector Yields:

2 Yr Treasury 0.13%
10 Yr Treasury 0.93%
10 Yr Municipal 0.69%
High Yield 4.34%

YTD Market Returns:

Dow Jones 7.25%
S&P 500 16.26%
Nasdaq 43.64%
MSCI-EAFE 5.43%
MSCI-Europe 3.14%
MSCI-Pacific 9.26%
MSCI-Emg Mkt 15.84%
 
US Agg Bond 7.51%
US Corp Bond 9.89%
US Gov’t Bond 8.92%

Commodity Prices:

Gold 1,900
Silver 26.52
Oil (WTI) 48.45

Currencies:

Dollar / Euro 1.22
Dollar / Pound 1.35
Yen / Dollar 103.24
Dollar / Canadian 0.78
 

Macro Overview

Concern has elevated regarding the possibility of a second wave of COVID-19 infections following a surge in cases across the country. Markets, however, continued to shrug off dismal economic data amid pandemic worries, as a sporadic easing of restrictions targeting businesses came about. The second quarter, which ended June 30th, saw a rebound in all eleven sectors of the S&P 500 Index, a reversal following the first quarter of the year.

The increase in new coronavirus cases in various states and cities has escalated anxiety among investors and market analysts. Fear of a second wave of infections has led to re-closures by some cities and businesses, inflicting further harm on already struggling businesses. The variance of methods being utilized by states and cities continues to be vastly inconsistent. The United States and the world will eventually need to learn to live with virus outbreaks and the turmoil that accompanies them with sheltering for high-risk individuals, washing hands, and wearing masks being the ongoing prescription.

The Federal Reserve is placing “safeguards” in place, should the second wave of infections emerge which could further debilitate economic activity. The safeguards include two newly created lending programs to facilitate liquidity for cities and businesses across the country. The Municipal Liquidity Facility provides essential funds to cities and municipalities suffering from the financial fallout of the outbreak, and the Main Street Lending Program provides loans to small and mid-sized businesses.

The Department of Labor acknowledged that it misclassified 4.9 million non-working people as newly employed for the month of May. The May employment data was initially questioned by economists and market analysts, yet propelled equity markets when released. Such data mishaps can place Labor Department data as well as data from other government entities into question. June employment data revealed a decrease in the unemployment rate, propelled by a resurgence in restaurant, hospitality, and leisure jobs.

The European Union (EU) remained closed to U.S. travelers this past month despite borders opening up to residents from other countries as of late June. In response to the steady increase of reported COVID-19 cases within U.S. borders, the EU extended the original July 1st travel ban suspension noting epidemiological factors as the justification.

The Congressional Budget Office (CBO) estimates that the virus outbreak will cost the U.S. economy $7.9 trillion over the next ten years. The uncertainty of how the virus may evolve and when a vaccine is introduced will alter cost estimates. (Sources: Fed, CBO, U.S. Treasury, CDC, Labor Department)

 
25% of workers ages 16 to 24 lost their jobs from February to May

Equities Remain Resilient – Domestic Equity Update

Equities rebounded in the second quarter, with all eleven sectors of the S&P 500 Index positive for the quarter. Sectors with the most advancements included consumer discretionary, energy, materials, and technology. Economists and analysts believe that the upswing in these sectors is representative of an economic recovery, yet hinged on the risk of a second outbreak wave.

The technology-heavy Nasdaq Index has outperformed the S&P 500 and the Dow Jones Industrial Index both year to date and for the second quarter. Some stock analysts believe that the disparity in performance is reminiscent of the dot-com expansion 20 years ago. (Sources: S&P, Nasdaq, Dow Jones, Bloomberg)

Rates Stabilize In June – Fixed Income Overview

Federal Reserve buying of debt securities continued in the second quarter under the Secondary Market Corporate Credit Facility program, which was established to maintain liquidity in the bond markets. Individual corporate bonds and ETFs have been part of the Fed’s buying program, which was launched in mid-June. Bonds purchased so far include debt issues from both investment grade and non-investment grade rated companies.

Corporate and government bonds continued to post positive returns in the second quarter, as yields stabilized following the dramatic drop in yields during the first quarter of the year. The benchmark 10-year Treasury bond yield closed at 0.66% at the end of June, helping to boost consumer lending and mortgage rates. (Sources: Treasury Dept., Federal Reserve, Bloomberg)

Unemployment Hits Young Workers Hardest – Labor Market Overview

Unemployment has hit younger workers the hardest, with roughly 25% of workers ages 16 to 24 losing their jobs from February to May due to the virus outbreak. Traditional sectors employing mostly younger workers, such as leisure, hospitality, and restaurants, have suffered dramatic drops in business activity since the outbreak.

Current conditions brought about by the pandemic have made it even more challenging for high school and college students, as well as graduates, to find short term and summer job positions.

Younger workers 16-19 years of age are experiencing unemployment rates as high as 30%, more than double the rate this same time last year. Teenagers are seeing nearly triple the amount of unemployed compared to all other age groups nationally, which is 11.1% unemployment as of the most recent data reported by the Department of Labor. (Sources: DOL, BLS)

 
Unlike PPP loans, Main Street loans are not grants and can’t be forgiven

Over Half of Unemployed Making More Than When Employed – Employment Update

The National Bureau of Economic Research released findings of a study examining the amount of unemployment benefits recipients are being paid. The study found that roughly 68% of jobless workers are bringing home more than what their job was paying them. The combination of state and federal unemployment benefits have been extremely generous with the passage of the $2.2 trillion CAREs Act. Unemployment benefit payments replaced an average of 134% of lost wages for the average jobless worker.

State unemployment benefits vary as to how long they last; however, the federal unemployment benefits of $600 per week are due to expire at the end of July, unless extended. Findings from the study show that lower-income workers have benefited the most from the enhanced unemployment payments, whose jobs may not be there when they return to work, due to the industries affected by employing lower-wage workers. Nevertheless, even if their jobs are currently there waiting with bated breath from them to return, it does not take a genius to see why some are waiting until such benefits expired before returning back to work. (Source: National Bureau of Economic Research Fed Main Street Loan Program – Stimulus Program Overview)

Small Business Loan Program Still Has Funds – Stimulus Program Review

Three months following the administration’s launch of pandemic relief programs, major debates have arisen in response to the remaining surplus of undirected funds in conjunction with the Paycheck Protection Program (PPP). The program was established to assist small businesses with critical funds in order to remain in business during the pandemic.

PPP loan measures have been taken and proposed by congressional members considering the excuse of loans $150,000 or less, which represents nearly 85% of all PPP loans, in order to minimize the burden while utilizing a minimal proportion of the Paycheck Protection Program’s overall expenditure.

After the Small Business Administration’s approval of increased loans, the program’s outlays are the largest financial outlay within COVID-19 spending. Loan applications have shown promising results to nearly 81% of PPP loan applicants, many reporting having already received the funds.

Unless extended by Congress, the Paycheck Protection Program stopped accepting new loan applications on June 30, 2020. As of June 12, 2020, the SBA reported that over 4.5 million PPP loans had been approved, with an average loan amount of $113,000. (Sources: SBA, congress.gov, NFIB)

 

 

 
IRAs and 401(k)s are allowed to have withdrawals up to $100,000

Tapping 401k & Retirement Plan Assets During The Crisis – Retirement Planning – Provisions initiated by the CAREs Act allows for the withdrawal of retirement plan assets with waived penalties and minimized tax liabilities. During the current tax year, retirement account owners will be able to withdraw funds from 401k plans, tax-deferred plans, and IRAs without any penalties. Loan limitations on company-sponsored 401k plans will also be relaxed, allowing employees to take larger loan amounts. Required Minimum Distributions (RMD)s are also being waived for 2020 distributions. Section 2202 under the CAREs Act enacted on March 27, 2020, provides for special distribution options and rollover rules for retirement plans and IRAs. Under the revised rules, IRA owners and retirement plan participants are allowed to withdraw up to $100,000 but must meet certain criteria to qualify. The IRS notes the following as criteria to meet: You are diagnosed with the coronavirus (COVID-19); Your spouse is diagnosed with the coronavirus (COVID-19); You experience adverse financial consequences as a result of being quarantined, furloughed, laid off, or having reduced work hours all due to COVID-19; Unable to work due to a lack of child care as a result of COVID-19; Experience adverse financial consequences as a result of closing a business or loss of hours as a result of COVID-19.

Distributions from IRAs and qualified plans will have the 10% penalty waived but are still taxed at the individual owner’s corresponding tax rate. Qualified distributions up to the $100,000 maximum are for distributions made between January 1, 2020 and December 30, 2020. Taxes on distributions may be paid over a three year period starting with the year in which the initial distribution was made. Distributions may also be repaid back to an IRA or qualified plan over a three year period to avoid any tax consequences. (Source: https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers)

Typical Scams Surrounding Coronavirus – The Federal Trade Commission (FTC) posted a handful of identified scams circulating throughout the country as a result of the coronavirus outbreak. Scammers are exploiting consumer fears and paranoia by targeting wary victims via email, phone, and text messages. Below are various scams to be aware of and what to do:

(1) Don’t respond to texts, emails, or calls about checks from the government. It is very rare that government agencies contact consumers directly.

(2) Ignore online offers for vaccinations and home test kits. There are no products proven to treat or prevent COVID-19 at this time.

(3) Hang up on robocalls. Scammers are using illegal robocalls to pitch everything from low-priced health insurance to work-at-home schemes.

(4) Watch for emails claiming to be from the CDC or WHO. Use sites like coronavirus.gov & usa.gov/coronavirus to get the latest information. Don’t click on unknown links.

(5) Be increasingly wary about charitable organizations claiming to need assistance due to the coronavirus. Never donate in cash, by gift card, or by wiring money.

(Source: FTC; https://www.consumer.ftc.gov/features/coronavirus-scams)