We hope this message finds you and your loved ones safe and healthy! We wanted to check in to let you know we are all doing well and are available to talk if you need us. For now, we are conducting our normal reviews via video calls or through screen sharing phone calls.
We have been busy! We have experienced a lot of volatility in virtually all markets which has created a lot of opportunities for portfolio rebalancing. We have been active in making adjustments while keeping the risk level of your investments in check.
Never in our lifetime have we seen the economy go from expansion, where the biggest challenge for many industries was finding skilled workers, to uncertainty, with the national unemployment rate estimated to be the highest it’s been since the great depression – all in about 2 months. Consider that during the Great Recession of 2008, the highest weekly initial unemployment claim number came in at around 670,000 versus 6.6 million just a few weeks ago.
We’ve now seen over 1 million COVID-19 cases in the US and over 65,000 deaths. Globally, we’ve seen over 3.5 million cases and 250,000 deaths.
Consumer spending, which drives 70% of our economy (measured by GDP) is down about 25% over last year at this time and consumer confidence has weakened considerably. It had peaked in late 2018 and today it’s down to levels last seen in May of 2014. Economists are predicting GDP to decrease by around 8% in 2020. Throughout the 2008 Great Recession, GDP declined by 4%.
500 of the largest publicly traded companies in the US (the S&P 500) saw their values drop 34% from February 19th to March 23rd and are now down roughly 15% from the February peak – a strong comeback built primarily on optimism that the country and companies will reopen quickly and successfully. Small companies (Russell 2000) performed worse, dropping 43% over the same time period, and have recovered to down around 24% from the February high.
Airline, hotel, and restaurant stocks have been hit the hardest, with financial, industrial, and energy companies not far behind. With demand declining substantially and a glut of supply, oil prices actually went negative for a brief period of time. Who would have thought that a case of toilet paper would be worth more than a barrel of oil!?
Warren Buffet, arguably the world’s most successful investor, reminded us over the weekend that markets can do anything at any point in time. When things are going well, we sometimes take that for granted and forget how quickly things can swing in the opposite direction. A solid financial plan is really the only medicine for a volatile market. We have likely all been reminded of why an emergency reserve of 3-6 months of living expenses is an essential piece of the plan. Although it feels very boring and can be frustrating in these times of low interest rates, it does serve a purpose.
We do see those low interest rates continuing in the future. The Federal Reserve – the central banking system in the US - cut short term interest rates to zero and have been buying bonds at an unprecedented level to keep credit markets operational so businesses can borrow money and continue to function. The interest rate on the 10-year government bond (T-notes) has dropped to 0.64%. Just one year ago, that rate was at 2.55% - a decline of almost 75%.
The Federal government has passed multiple bills to pump trillions of dollars into the economy, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). One result of the CARES Act is that IRA owners do not have to take Required Minimum Distributions in 2020. Many small businesses have applied for Paycheck Protection Program (PPP) and other loans to remain solvent.
So that’s where we are today. Looking forward, where are we going?
Much of the economy has been closed and is just now starting to re-open. 80% of large, publicly traded companies now reporting their earnings from the 1st quarter of this year have pulled their guidance – saying ultimately, they have no idea where their numbers will come in this year. This is one reason why we are seeing so much volatility. How do you accurately price a company with no idea of what future results will be?
Economic forecasts range from “a V-shaped recovery - we’ll bounce right back” to “Oh, this is bad, and it’s going to take a long, long time to get back.” Some economists predict massive deflation. Others predict massive inflation, and everything in between.
Some healthcare experts are optimistic about the development of treatments and a vaccine. Others are more pessimistic.
The bottom line is no one knows for sure how things will play out. But the stock market, which is looking ahead to determine the value of companies based on their expectation of future profits has made significant progress. There is a lot of optimism of the economy returning to normal but time will tell how long that actually takes.
We will continue to monitor the markets and actively manage your investments for the best possible results.
Big Milestone News!
Reta, our office manager, and her husband Ric recently became first-time grandparents. Their daughter, Raina, gave birth to a beautiful baby girl named Lark Geld Pletcher on April 27th at 6:30 PM at Lehigh Valley Hospital, Cedar Crest. Thankfully, Raina’s husband Dan was allowed to be with her during labor and delivery. Due to the COVID-19 restrictions, Reta and Ric are looking forward to the day they can hold Lark and to the many ways they are going to spoil their granddaughter. Lark is a long-awaited blessing to the Geld/Pletcher families and Reta, now known as GG (short for Grandma Geld) is overjoyed to be a member of the “grandparent club.”
Dave and his family have been busy! Tiffany is teaching remotely, and they have been trying to get the boys outside and putting them to work whenever possible.
Justin and his family have been trying to make the most of quarantine by getting outside and enjoying the nice days when they arrive. Emma said her first word, “Dada” and Justin was home to hear it – one positive out of this experience. She is getting big and will be walking in no time. He’s also had extra time to show Ellie how to shine up her big wheels!
Leslee is normally busy on the weekends with her daughter Alana's dance competitions. This year, however, she has only had one competition (pictured below with her sister Breanne) although they are still taking dance classes via Zoom video calls.