Greetings to all from US Advisory Group!
In this Quarterly Update, we will be talking about 1) Coronavirus fears as they relate to the Market & the global economy; 2) relatedly, US Advisory Group’s Thoughts on the Market as we look ahead into 2020; 3) timely, larger Financial Planning topics that are in the news, e.g. the SECURE Act; and 4) updates in & around US Advisory Group here at the office.
First off, let’s talk about the Coronavirus
We are not immunologists, and so while the human tragedy element here is not to be taken lightly, we will focus for a moment on the Economic impact of this situation. The S&P500 was down over 3% for the two consecutive days to begin the week, erasing the gains for 2020 to date.
A little context: during a 38-trading-day period in 2003 during the height of the SARS virus, the S&P500 fell 12.8%; during Zika in 2015-16, it fell by 12.9%. In those cases, and others, the markets recovered and hit new highs. In our opinion, a similar outcome is highly probable here.
This is not really the place for a detailed World Health Organization-type analysis of the health impact of the virus, nor of the efficacy of the Global Response. What seems evident at this point is that there is a great deal of confusion and mixed signals regarding the spread and efforts to contain this virus.
From a macro-economic perspective, the real question is how this will impact the US economy over the coming year. We can see already that there will be an impact, but the economic fundamentals that have supported this market have not changed all that much. We continue to see solid economic data, and while the expectation is that most of the economic impact of the coronavirus will be felt in the 2nd Quarter, US businesses are still well-positioned. Inventories & overseas manufacturing supply chains have been and will continue to be impacted at this point, but we expect that to lead to a surge in the second half of the year as the virus subsides and as businesses replenish lagging supplies due to the economic drag brought on by the virus.
There is a piece of good news amidst the chaos the virus has caused in supply chains and manufacturing: many companies have already been shifting their supply chains away from China due to the Trump Tariffs – this trend will likely accelerate due in part to the virus as we look ahead.
In summary, don’t panic, stay invested.
Secondly, let’s talk about the rest of the Market looking ahead into 2020
The first half of the year’s stories will be dominated by the impact of the Coronavirus as discussed above. Other important factors include a) the softening of trade relations between the US & China; b) the continuing trend of strong unemployment figures and US corporate earnings numbers; and c) the 2020 election.
The easing of tariffs is self-explanatory – fewer barriers to trade is good for markets overall, and less explosive rhetoric has facilitated a boost in the markets (up until this week’s virus fears overshadowed this). US economic indicators have continued their positive trends, save for the manufacturing sector. Manufacturing in the US has been getting beaten up for over a year now, so that is not “news.” Elsewhere in the economy, jobs and growth are moving in the right direction. And that takes us to the 2020 election.
With Super Tuesday around the corner, Bernie Sanders appears to be in the catbird’s seat for the Democratic party nomination. We know that puts chills into the spine of many on Wall Street. We also know that markets are resilient, and economic policy wish lists and economic policies implemented are not the same thing. When Barack Obama rolled into office, Investors (already having a historically bad 2 Quarters) were rending garments and screaming that it was “the End” – and that turned into a relatively quiet but incredibly durable bull market run. Bernie & Obama are not the same person nor set of policies, to be sure, but we are nowhere near heading for the hills. We have been and will continue to pay very close attention to economic forecasts as we get more clarity around what the 2020 election picture holds, and of course we will be talking with all of our clients one-on-one about how that may or may not impact portfolios.
On to the Third topic of this letter, let’s talk about bigger Financial Planning Topics.
The biggest “change” in the Financial Planning/Wealth Management space lately is the passing of the SECURE Act on 12/17/19 – and you said Congress couldn’t get anything done! The SECURE Act essentially makes adjustments to Retirement Plan rules that hadn’t been touched in a decade, pushing back the age for Required Minimum Distributions to start to age 72 from 70.5 (among other relevant changes). There has been quite a bit of ink spilled on this topic, including on our blog at usadvisory.com – I would encourage everyone (whether you are retired taking income or nowhere near that but have parents who are) to take a look, and if you have questions about how this may impact you, or friends of yours, please feel free to give us a call. Note especially: this legislation has a significant impact on non-spousal IRA beneficiary plans (not already in-place) – we have been in touch with just about every one of our clients who this impacts, however if you think your parents and/or friends might possibly be impacted by the new rules, first check out our blog post, but if there is any question, they need to talk to a financial advisor as soon as possible to review any potential exposure!
Other items to keep in mind: Interest rates remain at historically low levels. In fact, as of this writing, what was expected to be a zero-activity year for interest-rate changes from the Federal Reserve is now pricing in a 50% likelihood of an interest rate CUT in 2020. As we have discussed in the past, a return to higher “normal” rates should be expected at some point in the next year or two – albeit slowly and over time – but because of economic pressures caused from 2018-end-of-2019 by tariffs and now with the Coronavirus fears, that does not appear to be happening in the immediate future. The “panic” over an Inverted Yield Curve from the 3rd Quarter 2019 has passed as predicted, but investors are still very uncomfortable holding long term bonds given the historically low returns provided – if you have friends or family who are frustrated with the continued low rates that are out there, feel free to give us a call to talk about options.
There are plenty of other topics to go into on this front, but for brevity’s sake, we’ll take a pause here.
Fourth and finally, some great updates around US Advisory Group to share!
As you may have heard, Tucker welcomed his first daughter to the US Advisory Group family in December – Abigail “Abby” is doing great, as is her mom, and thanks to all of you who have passed along well-wishes – Abby got them all, and she is very appreciative.
Additionally, we are pleased to report that Rick & Chris’ Labrador Retrievers, Malcom & Archie, turned 1 year old last month (they are brothers!), and while they are still rambunctious puppies, they have at least learned to play together without causing bodily harm to each other. (Along with Abby, we have photos of the rapidly-growing pups up on the blog. But unlike Abby, they do not possess walk-in privileges at the office, at least until they move out of the crazy-puppy stage…)
In less-exciting but also positive and important news, Tucker and Chris are adding the titles of President and CEO, respectively, to their duties & responsibilities at the firm. We are also in the middle stages of creating our Advisory Board, which will essentially formalize our Team of outside Advisors who have worked informally in the past to offer long-term, strategic guidance to the Firm. We are excited at the progress that’s been made thus far, and these efforts will be a terrific boost to the growth of the Firm. Rick of course remains an integral part of the Firm, particularly in his role on the Investment Committee, overseeing US Advisory Group’s portfolios, and he will also be Chairing the Advisory Board. So, in practice, these are not tide-shifting changes for our clients & friends, but administratively, this helps continue to position the Firm for (at least) another generation of success in serving our Clients and the community.
Thank you all for your continued Trust & Confidence in our efforts to achieve financial success and peace of mind for our Clients – it truly means the world to us, and we greatly appreciate it. As always, for any questions about what’s going on in the world, how it relates to markets, your portfolios, or any other types of Financial Planning/Wealth Management questions – we are here to serve you all!
Here’s to a healthy, successful year ahead!
- Tucker, Chris, & Rick