MARKET WATCH
As I sit here trying to maintain some perspective as to what has happened since the February highs in the various stock market indices, one word comes to mind, and it is PANIC: a sudden overpowering fright. It is quite a shame to see how mass hysteria can be stoked, utilized and manipulated for ratings and political gain. I don’t pretend to know all the science or the politics behind the Covid-19 pandemic we are currently experiencing, but I do know this too shall pass and God willing I’ll be writing another quarterly newsletter in July. Meanwhile, let’s look at what has happened so far and then review the way disciplined investors should react when confronted with a panic.
After a strong 2019, the economy and the markets entered 2020 on a high note. The markets hit new highs and the economy continued to grow, even though the business cycle, and the bull market were approaching their 11th year. Enter the coronavirus, which continued to spread throughout the world with no treatment or cure and we soon had the end of our bull market, almost to the day of its 11th birthday.
The DJIA* hit its record high of 29,551.42 on Feb. 12th, while the S&P 500* and the NASDAQ* attained their respective high-water marks of 3,386.15 and 9,817.18 on Feb. 19th . In just a little over month, on Mar 23rd , the DJIA* closed at 18,591.93 for a 37.09% decline, while the S&P 500* ended that day at 2,237.40 down 33.93%. On the same day, the NASDAQ* finished at 6,860.67 which was a 30.12% decline from its peak. During the same time period there were wild swings in the indices as various states in the US and the Federal Government began to effectively close the country down. By the end of the first quarter, with the passage of the bipartisan CARES Act, the DJIA* retrenched to 21,917.16, while the S&P 500* recovered to 2,584.59 and the NASDAQ climbed to 7,700.10 still all in bear market territory with respective losses of 25.83%, 23.67% and 21.57% year to date.
Panic, fear and anxiety can be debilitating for many people, especially when the culprit is a microscopic villain. Models used by science often depict numerous scenarios including worst-case scenarios. It was Neil Ferguson’s worst-case scenario report in March, as the lead scientist at the Imperial College of London, citing the possible deaths of 2.2 million Americans and half a million Brits if no action was taken that was the impetus for the current situation. Ferguson’s study also contained a sub 20,000 death total scenario in the UK, which you will only learn about if you read his unfiltered research. Hence, my skepticism of the motives of the media.
So, what can we expect from the markets and the economy going forward, especially with the new relief and stimulus plan, as well as a possible infrastructure program being discussed by the White House and Congress. While we have no idea how badly this shutdown could hurt the economy, the CARES Act does go a long way to help families and businesses survive this unprecedented economic shutdown, as you can read in the other articles in this newsletter that go into more detail about parts of the plan. The last report of Gross Domestic Profit (GDP) was released on Mar. 26th and confirmed that 2019’s fourth quarter growth rate was 2.1%. The initial first quarter GDP report won’t be released until April 29th and many economists expect to see a contraction in GDP. Remember the textbook definition of a recession is two consecutive quarters of economic contraction and we won’t have a report that confirms recession until the end of July. So, you can be sure this will be a particularly cantankerous Presidential election.
Meanwhile, almost 10 million people filed for unemployment benefits during the last weeks of March, as the realities of the shutdown and subsequent panic became apparent. My very unscientific analysis of this situation reckons that when the panic buying of toilet paper in supermarkets ends, so too will the panic selling end with the markets. Alex Nabaum’s love the bear graphic below sums it up. While bear markets are painful, they are also buying opportunities for disciplined individuals who continue to Dollar Cost Average* through up and down markets. Even if you are retired and taking systematic withdrawals from your assets, you are just dollar cost averaging in reverse, taking small amounts from your account at any one time.
UNEMPLOYMENT ADAPTS TO HELP MANY WORKERS
The CARES Act creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payment to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.
Specifically, the CARES Act provides that a “covered individual” includes anyone who self-certifies that they are able and available to work but is unemployed or partially unemployed due to many situations prompted by the unprecedented shutdown of the economy due to coronavirus.
Some of the major reasons for eligibility are a medical diagnosis of an individual or family member with Covid-19, primary caregiver of children not in school due to a school closure, and individuals whose place of employment has closed due to government order or quarantine. Benefits have been extended from 26 weeks to 39 weeks and an additional $600 has been added to the state calculated amount for up to four months. The one week waiting period has also been eliminated.
Individuals are not eligible for unemployment benefits if they have the ability to telework with pay, are taking paid sick leave or have other paid leave benefits.
CARES ACT PROVIDES RELIEF FOR SMALL BUSINESSES
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
Small Business Guidance & Loan Resources
Health and government officials are working together to maintain the safety, security, and health of the American people. Small businesses are encouraged to do their part to keep their employees, customers, and themselves healthy.
Paycheck Protection Program
The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses. Small businesses and eligible nonprofits, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards. Eligible recipients may qualify for a loan up to $10 million determined by 8 weeks of prior average payroll plus an additional 25% of that amount. Loan payments will be deferred for six months. If you maintain your workforce, SBA will forgive the portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination.
Economic Injury Disaster Loans and Loan Advance
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.
The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.
SBA Debt Relief
The SBA Debt Relief program will provide a reprieve to small businesses as they overcome the challenges created by this health crisis. The SBA will also pay the principal and interest of new 7(a) loans issued prior to September 27, 2020. The SBA will pay the principal and interest of current 7(a) loans for a period of six months.
SBA Express Bridge Loans
Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. If a small business has an urgent need for cash while waiting for decision and disbursement on Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan. For more information, go to https://www.sba.gov.
Company Information
John H. Kaighn offers various products and services under the trade name of Jersey Benefits Advisors.
PO Box 1406
Ocean City, NJ 08270
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
John H. Kaighn is an Investment Advisor Representative & Registered Representative of Royal Alliance Associates, Inc. Securities and Advisory Services are offered through Royal Alliance Associates, Inc. (RAA) Member FINRA & SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA.
10 Exchange Place
Suite 1410
Jersey City, NJ 07302
Royal Alliance Associates, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.
Insurance Services and Third Party Administration offered through Jersey Benefits Group, Inc., a licensed Insurance Agency in the State of New Jersey.
PO Box 1406
Ocean City, NJ 08226
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
All opinions expressed in this newsletter are independent of Royal Alliance Associates, Inc. and solely those of John H. Kaighn and Jersey Benefits Advisors.
*The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past Performance does not guarantee future results and the performance of these indices does not reflect the fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, such as ROTH IRA’s, Traditional IRA’s, Coverdell Accounts, 529 Plans, Brokerage Accounts and Annuities can also be opened, and debited directly from checking or savings accounts. For more information, just call to set up an appointment. Referrals are always welcome.
John H. Kaighn
