2020 Half-Time An Unforgettable Year - and it's not over yet - FMG Video Live
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2020 Half-Time
An Unforgettable Year –
and it’s not over yet
Replace With Logo
Half-Time 2020 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Risk Considerations: The economic forecasts set forth in this presentation may not develop as predicted and there can be no guarantee strategies promoted will be successful. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
Where we’ve been Where we are now Where we may be going
A Quiz About Pandemic Life
Which is a drawback to video game work meetings? 1. Lengthy tutorials 2. Having a posse ride in and start a gunfight 3. Attendees getting bored mid-discussion and wandering off to mine things 4. All of the above
“A perk of this is that when you
agree that the meeting is over you
can all jump on your horses and
do crime or justice, which is a lot
less awkward than everyone
smiling at the camera while they're
trying to sign off”
Source: Mashable.com
Who DJs a pandemic- inspired online pirate radio station? 1. High schoolers 2. College students 3. Parents of young children 4. Retirees
Source: GoodNewsNetwork.org
Bedtime facts needed…Which of these are true? 1. Birds see ultraviolet as a unique color 2. Cats can be allergic to people 3. A blue whale’s tongue weighs as much as some elephants 4. All of the above
Source: Popsci.com
A company in Germany developed a calculator during the pandemic. What did it measure? 1. The number of song lyrics rewritten to accompany hand washing. 2. The amount of toilet paper needed during a pandemic. 3. The amount teachers should be paid based on parents' distance learning experiences. 4. The ratio of ingredients for homemade hand sanitizer.
“A person with a
stockpile of 10 rolls,
who uses the typical
amount of paper three
times a day, should
survive for 53 days.”
-- Reuters,
March 23, 2020
Source: Reuters.comWhere we’ve been
During the first 181 days of 2020:
• U.S.-China trade tension • Britain exited the European Union
• Australian bushfires • Civil unrest in Hong Kong
• U.S.-Iran conflict • Navy UFO/UAP videos released
• Coronavirus in China • COVID-19 declared a pandemic
• Royal retirement (Prince Harry • End of sports/concerts/shows (for
and Meghan Markle) now)
• Impeachment trial • U.S. recession
• Death of Kobe Bryant • U.S. civil justice protests
Source: WikipediaEnd of the longest bull market ever S&P Dow Jones Indices LLC, S&P 500 [SP500], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SP500, July 1, 2020.
In less than 30 days,
the market priced in a
level of fear that has
usually taken a year to
reach even during
severe recessions.
-- Denise Chisholm, Fidelity Q2 2020
sector scorecard, April 23, 2020
Source: FidelityFear and uncertainty spiked as COVID- 19 spread beyond China S&P Dow Jones Indices LLC, S&P 500 [SP500], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SP500, July 1, 2020.
COVID-19 caught the world unprepared Source: Our World In Data
Flattening the curve
Policy Responses
• School closures
• Workplace closures
• Cancelling public events
• Restrict public gatherings
• Stay-at-home orders
• Public transport closures
• Travel restrictions
Source: Our World In DataThe U.S. economy shrank by 5.0% Source: Bureau of Economic Analysis
Coronavirus policies slowed economic
growth
Came into effect
before March 22
Came into effect
before March 29
Came into effect
before April 5
Came into effect
before April 12
Source: WikipediaEvolution of Atlanta Fed GDPNow
real GDP estimate for 2020: Q2
Quarterly percent
change (Seasonally
adjusted annual
rate or SAAR)
Source: frbatlanta.orgPossible signs of economic recovery
Improving Same or worsening
Jobless claims New COVID-19 cases
Financial markets and conditions Lockdown Index
Mortgage applications Same store sales
Consumer comfort Active oil rigs
Restaurant/Airline bookings Steel production
Public transit ridership
Electricity demand
Source: Bloomberg, June 26, 2020U.S. unemployment trended lower U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNRATE, July 2, 2020. U.S. Bureau of Labor Statistics, Total Unemployed, Plus All Persons Marginally Attached to the Labor Force, Plus Total Employed Part Time for Economic Reasons, as a Percent of the Civilian Labor Force Plus All Persons Marginally Attached to the Labor Force (U-6) [U6RATE], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/U6RATE, July 2, 2020.
Purchasing and new orders trended higher Source: Institute for Supply Management
Consumer spending improved, personal
income declined
Source: Bureau of Economic Analysis: data as of May 31, 2020The problem is that the one-time payments have
already been disbursed and the enhanced
unemployment benefits are set to expire 'on or
before July 31, 2020.' Even if hiring continues
and wages keep rising – which is increasingly
doubtful as many states and cities roll back their
reopening plans as the virus spreads – that
means disposable personal income will abruptly
fall 3% to 4% below where it was in February.
-- Matthew Klein, Barron's, July 1, 2020
Source: Barron'sThe number of active business owners in the U.S.
dropped from February through April, 2020
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
Source: National Bureau of Economic ResearchThe personal saving rate increased
HIGHEST SAVING RATE
SINCE 1960s
Apr-20 33%
Mar-20 12.7%
Feb-20 8.2%
Jan-20 7.9%
Source: Bureau of Economic Analysis49% of Americans did
not have enough
savings to pay a $400
emergency expense
Source: Federal Reserve$480 – Uncle Sam
$300 – Honey Pot MOSBY
$300 – Other People’s Weddings
$120 – Mosby Fund
-- Erin Lowry, Grow,
June 21, 2019
Source: grow.acorns.comWhere we are
Finding ways to
fill our time
Source: Getty MuseumSource: Facebook
Source: Facebook
Source: Facebook
Markets have been volatile Source: Morningstar Direct, as of June 30, 2020
Stock valuations pushed higher Source: Multpl.com
Not all sectors market performed equally well
Communication Services 1.96%
Consumer Discretionary 4.81%
Consumer Staples –5.4%
Energy –31.29%
Financials –19.76%
Heath Care 0.23%
Industrials –12.56%
Information Technology 8.57%
Materials –5.5%
Real Estate –6.2
Utilities -5.3
Source: FidelityProfits declined and are expected to improve Source: Factset
Earnings estimates for 2021 are positive Source: Factset
Stock prices reflect what investors
expect will happen in the future
“…stock prices are established based on expectations…for the future
earnings power of the firm…Earnings estimates embody investors’
opinions of factors such as sales growth, product demand, competitive
industry environment, profit margins, and cost controls. Stock prices
adjust as these expectations change or are proven wrong.”
-- American Association of Individual Investors, cited June 8, 2020
Source: American Association of Individual InvestorsDon’t fight the Fed (monetary stimulus) Source: Blackrock
Governments have provided financial
support, too
Source: BlackrockThe burden of the downturn has not fallen
equally on all Americans. Instead, those least
able to withstand the downturn have been
affected most. As discussed in the
June Monetary Policy Report, low-income
households have experienced, by far, the
sharpest drop in employment, while job losses of
African Americans, Hispanics, and women have
been greater than that of other groups. If not
contained and reversed, the downturn could
further widen gaps in economic well-being that
the long expansion had made some progress in
closing.
-- Federal Reserve Chair Jerome Powell,
June 16, 2020
Source: Federal ReserveSource: Brookings
Governments and economic
systems of all kinds have
struggled to manage the pandemic
effectively and equitably. But it
does not take much imagination to
see that if politicians allow the
costs of the pandemic to be borne
unequally they could sow the
seeds of a transformative populist
backlash.
-- The Economist, May 16, 2020
Source: The EconomistYields on Treasury bonds reflected turmoil Board of Governors of the Federal Reserve System (US), 10-Year Treasury Constant Maturity Rate [DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS10, July 1, 2020.
Bond markets are moving with stock
markets
“The bond market…[is] selling off on the idea that the economy may
have hit rock bottom in April...As yields move higher, the yield curve has
also been steepening. That means the spread between the shortest
duration securities and the longer duration notes and bonds is widening.
It is the opposite of the so-called flattening yield curve which signals a
worsening economy and recession.”
-- Patti Domm, CNBC, June 3, 2020
Source: CNBCThe yield curve has steepened Source: Treasury.gov
End of bull
market in bonds?
“Forty years of a bull market in
bonds. It’s really hard to turn your
head around and say, could this be
a turning point? But, I think history
will say yes…I see rates rising
continuously over the next several
years.”
--Jeremy Siegel, Wharton Finance
Professor, on CNBC, June 5, 2020
Source: CNBCv
Where we may be
going?
vSource: Cartoon Collections
Still uncertain
about the future
When will we find a vaccine, therapy,
or cure?
Will there be a second wave of COVID-19?
Have consumer habits changed
permanently?
Have industries been fundamentally altered?
Will businesses recover quickly or slowly?
What shape will economic recovery take?
Source: ForbesThe possible shapes of economic recovery Source: Investopedia, MarketWatch
Consumer sentiment will affect the pace
of recovery
Month-to- Year-to-
June
month year
2020
change change
Index of Consumer Sentiment 78.1 +8.0 -20.5
Current Economic Conditions 87.1 +5.8 -22.2
Index of Consumer Expectations 72.3 +9.7 -19.0
Source: Surveys of Consumers, University of MichiganCOVID-19 isn't the only issue that could
affect global economic recovery
"The COVID-19 pandemic is
intensifying political frictions...posing
downside risks to markets. The crisis
has exacerbated tensions between the
U.S. and China, in particular, bringing
relations to their lowest point in
decades. Potential flashpoints include
trade commitments, technology and
investment restrictions, and policies
toward Hong Kong."
-- BlackRock Investment Institute,
May 2020
Source: BlackRock“An important issue that is already facing governments
and central banks is how to calibrate the removal of policy
support as lockdowns are lifted and workplaces reopen.
The most pressing aspect of this is how to taper employer
subsidy programs without causing a huge spike in
unemployment. Policy needs to shift from combatting a
crisis to supporting the recovery. Making this transition will
not be easy. One of the biggest risks in the near-term is
that governments move too quickly to embrace a new
round of austerity. ”
-- Neil Shearing, Group Chief Economist,
Capital Economics, June 1, 2020
Source: Capital Economics"The election puts a self-limiting factor into the equity
rally...Either the market sells off in the short run to register
the currently likely victory of Joe Biden, who will hike
taxes, wages, and regulation, or the market rallies all the
way till the election, increasing the chances of President
Trump’s reelection, which would revolutionize the global
system, especially on trade, and would require a selloff
around December.“
-- Matt Gertken, geopolitical strategist for BCA Research,
cited by Andrea Riquier of MarketWatch, June 13, 2020
Source: MarketWatch“One of my concerns is investor complacency – bred from
stocks’ rocket launch off the lows. There is no shortage of
catalysts for a consolidation and/or a period of heightened
volatility; including second waves of the virus, second-
order/lasting economic effects of the shutdown, simmering
tensions between the United States and China, budding
election uncertainty, and of course civil unrest on the heels
of the death of George Floyd.”
-- Liz Ann Sonders, Senior Vice President and Chief
Investment Strategist, Charles Schwab, June 1, 2020
Source: Schwab“Longer-term analyses of the coronavirus pandemic
emphasize that there is a good chance that it will fade
within a year or two, especially if a vaccine or effective
treatment appears. I hope that’s true. But even if it is, I’m
worried that the economy may not return to normal within
that time frame.
Big events like a pandemic have the potential to leave
behind a trail of disruption. They can create social discord,
reduce people’s willingness to spend and take risks,
destroy business momentum, and shake confidence in the
value of investments.”
-- Robert Shiller, Sterling Professor of Economics at Yale,
The New York Times, May 29, 2020
Source: New York TimesHALF-TIME 2020
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their The International Monetary Fund is an organization of 189 countries, working to foster global
industries and widely held by individuals and institutional investors. monetary cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth, and reduce poverty around the world.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the aggregate market The Russell 2000 index is a small-cap stock market index of U.S. companies that measures
the performance of approximately 2,000 American companies. These companies are the smallest
value of 500 stocks representing all major industries.
capitalization companies in the Russell 3000 Index.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid The MSCI Emerging Markets Index includes large and mid-cap companies in 26 Emerging Markets
by urban consumers for a market basket of consumer goods and services. (EM) countries. It covers approximately 85% of the free float-adjusted market capitalization in each
country.
Personal Consumption Expenditures (PCE) is a measure of price changes in consumer goods and
services, targeted towards goods and services consumed by individuals. PCE is released monthly The MSCI EAFE Index reflects the performance of large and mid-cap companies in 21 developed
by the Bureau of Economic Analysis (BEA). markets, including countries in Europe, Australasia, and the Far East, and excludes the United
States and Canada. The Index covers approximately 85% of the free float-adjusted market
Quantitative Easing (QE) is a government monetary policy occasionally used to increase the money capitalization in each of the countries.
supply by buying government securities or other securities from the market. QE increases the
The Bloomberg Barclays U.S. Aggregate Bond Index measures investment grade, U.S. dollar-
money supply by flooding financial institutions with capital in an effort to promote increased lending denominated, fixed-rate taxable bonds. The index includes Treasuries, government-related and
and liquidity. corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS
(agency and non-agency).
The Price-to-Earning (P/E) ratio is a measure of the price paid for a share relative to the annual net
income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E The Bloomberg Barclays U.S. Treasury Bill Index tracks the market for treasury bills issued by the
ratio means investors are paying more for each unit of net income, thus, the stock is more U.S. government. U.S. Treasury bills are issued in fixed maturity terms of 4-, 13-, 26-, and 52-
expensive compared to one with a lower P/E ratio. weeks. The U.S. Treasury Bill Index is a component of the U.S. Short Treasury Index along with
U.S. Treasury notes and bonds that have fallen below one year to maturity.
The Securities Industry and Financial Markets Association (SIFMA) is a U.S. industry trade group
Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity
representing securities firms, banks, and asset management companies. SIFMA was formed on
futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3
November 1, 2006 from the merger of the Bond Market Association and the Securities Industry by world production and weight-caps are applied at the commodity, sector, and group level for
Association. diversification.
The World Bank is made up of 189 member countries. Its goals are to end extreme poverty and The FTSE Nareit All Equity REITs Index is a free-float adjusted, market capitalization-weighted
promote shared prosperity. index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than
50 percent of total assets in qualifying real estate assets other than mortgages secured by real
The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system. property.You can also read
