March 27, 2020
Happy Friday! These are challenging and uncertain times but we want to share a message of confidence and belief in better days to come. For now, we hope that everyone remains safe and well and that you are able to find ways to make the best of this situation.
Economically this was, in some ways, a week of relief and celebration as the government took some necessary actions to manage this recession. There were three key steps that had to happen for people to have hope for the future during this economic shutdown:
1) Support the Bond Market: The Federal Reserve needed to provide liquidity to the bond market. They did that on Monday by promising to buy treasury, corporate, and municipal bonds and established programs to provide financing to corporations, consumers, and businesses.
2) Fiscal Stimulus: The government (Congress and the President) needed to provide stimulus to the economy by increasing spending. Today they passed, and the President signed, an unprecedented stimulus package that agrees to send checks to households with reported income of up to $99,000 per person; increases funding for unemployment insurance—which for the first time will cover payments to self-employed workers in the 'gig economy’; and, provides funding for hospitals and business loans. In addition, the government has extended deadlines for various tax payments. The stock market rose this week in anticipation of these stimulus programs.
Required Minimum Distributions: For retirees, the new law suspends for 2020 the required minimum distributions (RMD) that the government requires individuals to take from tax-deferred 401(k)s and individual retirement accounts (IRAs) starting at either age 70½ or age 72. We are awaiting guidance to see if this also applies to inherited IRAs.
State tax deadlines: The Ohio state tax deadline is now extended to July 15 to match the federal tax filing deadline. Other states: Check TaxFoundation.org's timeline to see if your state has extended the tax filing deadline.
3) Fix the Underlying Health Issue: Now the focus shifts to the health crisis and when it will show signs of abatement. The US is now the epicenter, with the most cases anywhere in the world. If it is true that the growth in number of cases started to slow around week 2 or 3 after the peak in China and Italy, that would say we should be seeing some better news by the end of April. We are all watching that closely. There are lots of resources available to stay informed about this pandemic, and while we encourage you to obviously stay informed, we also caution you to be judicious about using trusted resources to do so.
It's certainly better to see good news and actions taken this week, and we are delighted that the economic stimulus is taking place because almost all economists agree it is critical in this unprecedented crisis. We still remain circumspect about upcoming market forecasts until there is a clearer understanding of how the underlying pandemic will be resolved.
Much of the market excitement this week came as some cable news channels had some famed investors and other pundits sharing optimistic views. In a strange twist, we saw the stock market go up the day that a record high number of people (over 3 million) filed for unemployment, and that number is expected to increase. In addition, index funds and fund managers performed quarter-end rebalancing, which required purchasing stocks. It is important to know that in recessions like this one, you can expect that market lows are revisited before the market turns around for good. We find that it is best to think of cable news channels as simply entertainment, and day-to-day fluctuations as noise, while we wait for real health and economic data.
As always, we remain attentive to the geopolitical landscape and protective of your financial well-being. As changes need to be made, we will keep everyone informed along the way. If for any reason you find yourself worried about any financial issue, please do not hesitate to call us any time.
We are all working together in our 'physical distancing' sacrifices for the benefit of our friends and neighbors, and better days are ahead. In the most challenging times, the best thing we can do is to appreciate every day and support ourselves and those around us. We send our best to each of you and your family and look forward to talking with you again soon. Stay safe and enjoy this springtime weekend!