Well, that was certainly a quarter for the memory banks.  Hopefully not to be repeated.

Both Derek and Melissa decided to work from home for most of March, April, and May.  We returned to the office on a limited basis just before Memorial Day, and have been slowing returning to normal operations.  The phone and Zoom became very good friends of ours over the last few months.  While we may be returning to normal operations and having some in-person meetings, we are still using Zoom for virtual meetings more frequently than any other medium.

While time in office was down considerably, there was plenty of activity both locally and nationally to keep us occupied.

From a family perspective, my oldest daughter wrapped up her first hear of kindergarten (virtually) while my wife completed her 11th year of teaching kindergarten (virtually).  I think everyone is on the same page when we say we hope we don’t have to do that again this fall!

Melissa probably had the most exciting quarter.  She found out she was pregnant, got a puppy (Cayman), AND bought a house!  Her little bundle is due in November and they move into their new home this week.

From a business perspective, Q2 mainly focused on government assistance programs (PPP/EIDL/Unemployment) and consulting with business owners, self-employed individuals, and employees alike on strategic planning and utilizing the programs available to them in the most efficient manner.  In true government fashion, the rules kept changing, and continue to change to this day.  Fun!

In addition, Derek had his annual audit with the State of Michigan (virtually) over many weeks in May and June.  We are happy to report the State was complimentary of our operations and organization, finding us in full compliance.

Since COVID disrupted many normal activities, some to-do items may have shifted to the side burner until things calmed down.  If you have any items you would like to address, even outside our normal topics, please don’t hesitate to ask.

 

Stocks

The S&P 500 surged during the second quarter, rallying 20% while the Dow Jones gained 18% including dividends. The technology-heavy NASDAQ rose 31% and the Russell 2000 small-company index jumped 26%. It was the best quarter for US stocks since 1998. Your IRAs and 401(k)s caught a nice reprieve from losses earlier in the year. As always, sticking with a long-term plan is the way to go – particularly when things are quite scary in the financial markets. For individuals still contributing to their retirement and brokerage accounts, the March-April period may have been a great time to be adding to equities due to their depressed price levels. And for those currently in retirement – I have good news for you, too – bonds provided great diversification benefits to limit the downside of stocks earlier this year, and most dividends were paid on schedule. While the last 3 months have not been fun, by any means, there is at least a sense of resilience in the public equity markets.

Turning to overseas markets, the international stock market index gained 16%. Despite underperforming the US market for the quarter, the “Rest of World” index had one of its best months relative to the US stock market since 2009 according to Bloomberg.

Digging deeper into the domestic market, the energy sector had the best quarterly rebound after getting hit hard during Q1. Technology stocks were once again in favor as the quarantine, lockdown, and work-from-home movement led investors to online and computer-based companies and away from brick & mortar places of business.

Bonds

Interest rates were quite flat for most of the quarter, believe it or not. The good news for Americans is ultra-low interest rates due to a poor economy and extensive actions by the Federal Reserve means record-low mortgage rates. If you have been thinking about re-financing, it could be a great time. Freddie Mac reports that the typical 15-year mortgage is under 3% while a conventional 30-year fixed-rate mortgage is slightly above 3%.

While the stock market was quite volatile – we all easily recall the Dow Jones swinging around 1,000 points or more at times – bonds were tame and provided a cushion versus the equity markets’ volatile moves. Credit-risky fixed income funds performed quite well – areas like high-yield and emerging market bond securities rallied nicely after being hit hard during the first quarter.

 

Economy & Policy

While the stock market bottomed on March 23, the economy likely hit its worst stretch during early April when lockdowns were in full force across the country. We can use Apple and Google cell phone data to identify mobility trends among the population – and people just got tired of the lockdown after a few weeks. Currently, many regions show mobility not far from year-ago levels.

In terms of hard data, April had the worst job loss month ever at more than 20 million. May bounced back with about 2.5 million jobs re-claimed. The unemployment rate skyrocketed during the second quarter – ballooning from under 5% to 14.7% following the April employment report.

Inflation is not a concern – yet. While the US Federal Reserve expanded its holdings of securities to more than $7 trillion, nearly doubling from earlier this year, expectations for future inflation are very low – near 1.5%. Meanwhile, GDP growth is expected to return in the second half of the year, but an overall economic decline in 2020 is still expected for not only the US, but also the rest of the world care of COVID-19’s devastating impacts.

But what about YOUR situation? There are a few policy-related items to know.

• The tax deadline is July 15. Have you filed your taxes yet? You can still request an extension to October 15, however.
• Did you take a Required Minimum Distribution for 2020? You may have the option to roll it back into your IRA according to new legislation to help relieve the tax burden of Americans.
• The $600 unemployment benefit set forth by the federal government is set to end on July 31, but many analysts think that may be extended. We will monitor the situation.

Risks may be shifting toward the election. We are within five months of the Biden versus Trump show-down. A general election is always a risky proposition for markets, but interestingly, stocks tend to perform well in advance in early November during election years. Let’s not talk politics – let’s focus on YOUR situation. Don’t let politics disrupt your long-term financial plan. Markets have survived so much already, and the worst thing that can happen is not if your candidate doesn’t win, rather if YOU make wholesale changes due to changes in Washington.

Commodities & Currencies

What a quarter it was for oil & gold. Starting with ‘black gold’, US crude oil hit NEGATIVE $40 per barrel for a brief time in April. How can that possibly happen?? Storage neared capacity and an oil investment fund was caught on the wrong side of the market, as they say. Not to mention it does cost money to transport and store physical oil. It was just the perfect storm. Oil bounced back, however, as some economic optimism about a recovery drove prices back above $0 and to POSITIVE $40.

Gold is near its best levels since 2012 after many years of underperforming other asset classes. Perhaps traders are concerned about how much money has been created by Central Banks around the world, primarily from the US Federal Reserve. Gold is seen as a safe asset once again – it is up a whopping 7 quarters in a row.

The US Dollar surged during the panic of late March but then fell back. This happens often in financial markets as the Greenback is viewed as a safe-haven. Like a flock of birds, investors fly to safety during tumultuous times. The Greenback drifted lower toward the end of the first half of the quarter, helping to boost commodity prices and international stock markets.

Here’s the point:

Markets bounced back in Q2, no doubt about it. Risks remain – will this first wave, now devastating southern and western states, lead to another round of economic shutdown? Will a second wave come at us during the fall and winter? We don’t know, and we can’t control that. What can we control? Our actions and our decisions. We’ve talked to everyone about their situation individually, and have made clear any to-dos for each.  While this time may feel different, it will work itself out, like every shock the system before this.  We are here if you have any questions.

The good news? We just survived one of the most volatile 4-month periods ever. If we can get through that, we can get through the toughest times in the markets. And in an odd sense, a big market decline is a good thing – it removes the ‘frothiness’ that likely came with an 11-year bull market. But that’s not to say it’s all rainbows and unicorns from here. We will remain focused on your short-term needs and longer-term wants.

Thank you for being a client, and be safe!

Charts of the Quarter:

 

 

Featured Image: Photo by Chris Liverani on Unsplash