Broker Check

Monday Money Report

| May 11, 2020
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The markets posted gains again last week, and the S&P 500 is positive on a year-over year basis.  Meaning your investments are worth more now than they were one year ago.  It’s like A Tale of Two Cities.  How is that possible, given record unemployment, the ongoing shut down, and high profile bankruptcies like J Crew and Nieman Marcus?

There are several things that are impacting the market.  First, the stock market is a leading economic indicator, meaning stocks are typically priced based on what investors think is going to happen, not what is happening. The market seems to be saying things will rebound quickly once the shut down is over.  We also have good news in terms of treatments and vaccines in clinical trials, and the increased availability of testing.

In addition, jobless claims are decreasing, meaning the number of new people filing for unemployment is less. That indicates we are near the bottom of job losses.  Consumer spending is also starting to increase.  Overall spending levels are at 2017 levels, and growth in spending, while less than the beginning of 2020, is equal with last year.

The market has also seen that there has not been a resurgence of the virus in Asian countries that are re-opening, which is good news as Italy and parts of the US reopen.

This answers why the market is doing so well.  But what about the bankruptcies? What’s important to remember is that the current crisis, in economic terms, is a liquidity crisis – meaning businesses faced a sudden loss of cash flow, and not a solvency crisis – meaning the business is not able to sustain itself, or it owes more than it can repay.  If a miracle cure for the virus was announced tomorrow and businesses reopened, the vast majority would bounce back with the return of cash flow.  J Crew and Nieman Marcus were already in trouble before the crisis.  The shutdown accelerated the pace of their failure, but it didn’t cause their failure.

So, what do you do with this information? If you are still working, keep investing, and work on building your cash reserves. If you can refinance, look into that as well.  If you are out of work or struggling with reduced pay, reach out to every lender you have – mortgage, car loans, credit cards, and discuss forbearance options. As a last resort, tap into your retirement savings. 

If you’re at home, this is also a great time to review your estate plan.  Most estate attorneys are still meeting clients virtually.  You can download the Maryland state statutory Power of Attorney and Medical Directive forms from the state attorney general’s website.  Confirm your beneficiaries are all correct and up-to-date.  And if you have a big pile of documents that need to be shredded, CovingtonAlsina is hosting a community shredding event on Saturday, May 23rd from 2 to 4.  Details are on our website.  It’s free, but we will be accepting donations for Feed Anne Arundel at the event.

We also have three more virtual events this month, covering the current market volatility, taxes, and Social Security.  Visit us at covingtonalsina.com or our Facebook page to learn more.  

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.

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