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Observations & Insights (7/10/2020) Thumbnail

Observations & Insights (7/10/2020)

The stock market continued to trend upward as the S&P 500 neared positive returns for the year and the NASDAQ reached all time highs...

  • Jobless Claims Beat Expectations: Weekly initial jobless claims came in at 1.3 million vs 1.4 million Briefing.com consensus; continuing claims also beat expectations at 18.1 million. Claims data suggest a gradual improvement in the unemployment rate is likely, but slow pace of improvement paired with rising permanent job loss indicate longer-term economic damage. However, when looking at the underlying data on a state-by-state basis, 22 states saw week over week increases in jobless claims. More than half of the states that are considered late-stage re-openers reported increases, with New Jersey exhibiting the most significant increase of 67%.
  • COVID Update: US's rolling seven-day average of daily new cases hit a record on Monday for a 28th straight day; the U.S. death toll stands at more than 131,000. Hospitals have come under strain in hard-hit states such as Texas, Arizona, and Florida. Investors are closely watching the U.S. trend of the coronavirus spreading among young people while the death toll drops/plateaus. Meanwhile, the US has formally notified the WHO it will withdraw from the UN agency over President Trump's criticism of its ties to China. Exit won't take effect until next July, leaving it contingent on Trump's re-election.
  • Gold Continues Upward Trend: Gold spot prices rose above $1,800/oz for the first time since 2011 as investors continue to favor the traditional haven. Flows into gold-backed ETFs have already topped the full-year record set in 2009. Gold has multiple tailwinds in today's market environment: uncertainty/volatility, persistently low interest rates, and inflationary worries following debt-fueled stimulus.
  • Concentration concerns: The five largest companies in the S&P 500 (Facebook, Apple, Amazon, Netflix & Google) now account for 22.5% of the overall index from a market cap-perspective. These companies have helped to move the market higher over the past several years and can do the same on the downside. Concentration is concerning within sectors as well. An investment in the Communications sector is driven by only five companies. The same can be said for the Discretionary and Energy sectors. However, Industrials and Health Care are less concentrated and thus likely present a better opportunity for active managers to add value within large caps.

Planning Idea for the Week...

  • CARES Act and Retirement Plans: 
    • RMDs: On Tuesday, June 23, the IRS announced rollover relief for those who have already taken some or all of their 2020 required minimum distribution (RMD). Distributions taken before, on, or after February 1, 2020, that would have been equal to the RMD, are now allowed to be deposited back into the distributing IRA, even if the repayment is made more than 60 days after the distribution date, as long as the repayment is made by August 31, 2020. Additionally, all 2020 monthly RMDs from IRAs waived under the CARES Act can now be rolled back into the distributing IRA by August 31, 2020, and will not violate the once-per-year rule. 2020 RMDs on inherited IRAs received by non-spousal beneficiaries, which are usually ineligible for rollovers, may also be rolled back into the distributing IRA by August 31, 2020.
    • Non-RMD Distributions: The CARES Act provides an additional cash-flow opportunity by waiving the 10% penalty on early retirement plan distributions provided for in code section 72(t) on 2020 coronavirus-related distributions up to $100,000. The distribution would be included in the individual’s taxable income ratably over 3 years, unless they elected to include the full amount in the year of distribution. Alternatively, if an individual receives a coronavirus-related distribution from a retirement plan, they can repay the distribution amount to an eligible retirement plan within 3 years and the distribution will be treated as a rollover contribution (a non-taxable event). Those impacted by the Coronavirus are defined as those who:
      • Are diagnosed or have a spouse/dependent diagnosed with COVID-19
      • Experience adverse financial consequences as a result of being quarantined, furloughed, laid off, or suffering a reduction in workhours, being unable to work because childcare cannot otherwise be provided, owning a business operating under reduced hours or suffered closure, receiving a reduction in pay (or self-employment income) or having a job offer rescinded or a start date delayed due to COVID-19; or
      • Have a spouse or other household member experience any of the above due to COVID-19
We would be happy to discuss how these planning ideas can help with your specific financial situation.

Good News From Around the World
  • Gary Larson, the famed artist and mind behind The Far Side cartoon, is publishing new comics after 25 years
  • Sydney, Australia is now powered by 100% renewable energy. The city, which is home to a quarter-million people, has begun sourcing all of its energy from two solar farms and the largest wind farm in all of New South Wale.
  • Researchers at Duke University have developed the first cartilage-mimicking gel that could one day offer people with knee troubles a replacement for damaged cartilage, and an alternative to the 600,000 knee replacement surgeries performed in the U.S. each year.
  • Mara, a Stellar Sea Lion at the Alaska Sea Life Center, welcomed a little one on June 26th! You can watch her take her first swim here.
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