Happy Friday! Another week has passed and we wanted to send along some information on the markets and a healthy dose of hope We are all healthy and our team continues to be fully functional.
Here are some highlights from this week that we thought might be of interest:
- The focus of the week was oil…
- The price of oil (for delivery next month) plunged Monday (May Futures Contracts ended the day ($37.63)). While supply-side issues (e.g. OPEC+ chaos) have aided crude’s historic year-to-date drop, the main culprit remains coronavirus-driven demand loss. As the global economy has stalled, the need for oil has all-but-dried-up. Severe oversupply has also caused a lack of available storage, ultimately culminating in Monday’s bizarre session. Simply, oil prices are heavily influenced by near-month futures contract pricing. Futures are standardized, exchange-traded contracts to buy or sell a particular asset (e.g. oil) at a predetermined price at a specified time in the future. The issue is most futures traders do not want hundreds of thousands of gallons of oil, they merely want to speculate on price movements. When, for instance, a May contract is coming due, they’ll sell the May and buy the June. But with little-to-no storage available, no one wanted to buy May contracts and take delivery of oil. This resulted in incredible selling pressure that culminated in (for the first time ever) negatively priced futures. Again, people were being paid to take delivery of oil.
- By the end of the week, the price recovered some and was up 19% on Thursday alone. However, the price is still down 82.91% YTD.
- There is significant continued uncertainty in the oil markets, that will only begin to clear up when demand comes back into the market.
- The stock market reacted to the news, down Monday and Tuesday, but stabilizing and moving little on Wednesday and Thursday.
- The discussion continues on reopening the economy:
- As the Federal Government and States look towards reopening, take a look at this list produced by the EPA of disinfectants that are effective versus COVID-19
- A key component of opening economies is contact tracing. Contact tracing involves identifying and interviewing an individual who tested positive for COVID-19 and identifying all close human contact that individual has had during their infectious period. This creates a detailed timeline of their daily life in order to identify and advise the people exposed that they need to self-quarantine or isolate, in hopes of arresting the chain of transmission spreading the virus. Here is more information on how Alaska is approaching this.
- Planning Idea for the Week:
- Tax loss harvesting: One upside to the decline in the economy is the opportunity to utilize tax-loss harvesting strategies. Tax-loss harvesting is the selling of securities at a loss with the intention of using these losses to offset current and future capital gains. Short-term capital gains are taxed at an individual’s marginal tax rate while long-term capital gains are taxed at a 15% (or 20% for higher income-earners) tax rate. When filing an individual tax return for a given year, any capital losses are first used to offset any capital gains. If an overall net capital loss exists, you can deduct up to $3,000 against your ordinary income. In a situation where you have harvested short-term losses but have unrealized long-term capital gains you are considering selling, it may be best to hold off on doing so to prevent using the short-term, and more valuable, loss against an income type taxed at the lower 15% or 20% rate. Any unused capital losses after applying $3,000 to ordinary income can be carried forward to use in future years.
- The next round of stimulus was passed by Congress and signed today by President Trump:
- $310 billion in new funds for the Paycheck Protection Program, which gives small firms loans that could be forgiven if they use them on wages, benefits, rent and utilities. Within that pool, $60 billion will specifically go to small lenders, a priority Democrats pushed for after they blocked a $250 billion funding bill earlier this month.
- $60 billion for Small Business Administration disaster assistance loans and grants.
- $75 billion in grants to hospitals overwhelmed by a rush of Covid-19 patients.
- $25 billion to bolster coronavirus testing, a core piece of any plan to restart the U.S. economy.
- Good News From Around the World:
- The NFL went ahead with the 2020 draft last night virtually. Quarterback Joe Burrow out of LSU was the number one pick for Cincinnati. It will take place over three days: April 23rd (Round 1), April 24th (Round 2-3), April 25th (Round 4-7). They also did it in conjunction a #DraftAThon, a three day virtual fundraiser to support COVID-19 relief efforts (as of the writing of this email, over $3.9 Million had been raised to support Feeding America, Meals on Wheels, The Salvation Army, United Way, American Red Cross, and the CDC Foundation).
- The Florida Aquarium has made history, with its Center for Conservation scientists successfully reproducing ridged cactus coral in human care for the first time ever. Debborah Luke, the aquarium's senior vice president of conservation, told CBS News the scientists will use their research to "increase the genetic diversity of coral offspring, maximize coral reproduction rates, and advance coral health." The only reef system in the continental United States is the Florida Reef tract, which has been damaged by boats, disease, pollution, and climate change.
We hope that you have a nice weekend and please do not hesitate to reach out with any questions at 907-677-8300.
The Planning Group of the Northwest