pexels samuel silitonga

This summer, the financial markets sprinted ahead at a record pace. Improved treatments for COVID-19, the prospects of a vaccine, and hopes for a V-Shaped economic recovery brought retail and institutional investors out in force. Small investors, many of whom were sheltering in place, opened millions of accounts at new online trading entrants such as Robinhood and Webull. While many of these first-time investors chased the stock of the day, others became active in financial derivatives, or as Warren Buffett calls them “weapons of mass financial destruction.” Not to be outdone, some institutional investors were active in the derivatives markets as well. Softbank, a Japanese conglomerate, reportedly bought $4 billion of call options tied to a basket of high-profile tech stocks. Many believe this unusually large derivatives activity contributed to August’s strong gains, particularly among large-cap tech stocks.

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The shifting landscape for commerce (e.g., bricks to clicks), record unemployment, and the number of businesses that have permanently closed due to COVID-19 creates a degree of economic uncertainty we have not seen since The Great Recession of 2007-09.  In this commentary, we will discuss some of these economic challenges, assess how the markets responded in the second quarter, and highlight a few of the most pressing threats and opportunities for investors.  

 Included in this issue:

Fighting Covid-19
Another Great Challenge
The Storm Beneath the Broader Markets’ Calm
The Federal Reserve Just Did What?
With Rates So Low What Do Investors Do With Their Cash?
Can I Count on These Dividends
As Many Have Concluded, “the Stock Market Is Not the Economy”
All Eyes Are on 2021 Earnings (and the elections in November)
Some Welcome Constants

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Confronted with the challenges of COVID-19 the Federal Reserve has taken unprecedented actions, including a commitment to buying U.S. Treasuries, municipal, and most recently corporate debt.  The chart below depicting the expansion of the Federal Reserve balance sheet highlights the scale of these efforts.

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The SECURE Act and recently passed CARES Act in response to the COVID-19 crisis create some unique retirement, tax, and estate planning opportunities.  We referenced a number of these in our April Market Commentary.  In this planning update, we highlight those most pertinent to individuals and provide additional details.  Please contact us or your tax and estate advisors if you have questions on the changes discussed below or other planning considerations. 

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“The will to win cannot be beat, you gotta wanna win!”  -Popular youth sports cheer

The ink was barely dry on the year-end market reviews discussing the tremendous gains of 2019 when investors started to worry about the risks associated with COVID-19.  As cases grew exponentially in Europe, and Seattle was first hit here at home, investors raced to reduce risk and, in some cases, panicked.  The health and economic unknowns of the virus’ spread led to the steepest stock market drawdown in history and the second worst first quarter ever.  In just 27 trading days the Dow Jones Industrial Average fell 37% from its 29,551 high to 18,591 on March 23rd.  Certainly previous market corrections have been more severe, but the pace of the decline and associated volatility in stocks, fixed-income, and commodities were historic. 

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