Counterpunching By Thomas E. Nugent Executive Vice President, Chief Investment Officer PlanMember Securities Corporation After a tumultuous March when the stock market collapsed in the face of a one-two punch, the coronavirus onslaught and the fall in the price of oil, many equity investors expressed the fear that the worst was yet to come. The announcement of a federally mandated business shutdown brought economic progress to a standstill and measures of economic stability became meaningless as only essential businesses, such as grocery stores and pharmacies, continued operations. Daily revisions to the economic outlook became uglier by the day as economists and strategists rushed to lower their projections on growth and profitability. An explosion in unemployment claims early in April as reflected in the following exhibit confirmed that the outlook was indeed ominous. As professional investors, one of our jobs is to assess the outlook for the economy and the financial markets and make investment decisions based on that outlook. The blindside impact of the coronavirus and the oil price collapse and their likely impact on near-term economic statistics detract from an ability to forecast related data and trends. As we have said in previous communications, the outlook over the near term is unknown, but a recovery from these events should usher in an improving stock market. When evidence began to appear that the onslaught of the virus slowed, the markets began to recover. For most of April, the recovery continued as the rate of new virus cases slowed. The Dow Jones Industrial Average surged from a low point on March 23rd of 18,213.65 to an April 30th close of 24345.73, a gain of 33.66%. As efforts to come up with both therapeutic and vaccine solutions to the problem accelerated, individual states began to roll back the lockdown procedures that were mandated by the federal government. The crises that many have referred to as the equivalent of a World War triggered a massive simulative response from the federal government. From the first salvo fired by the President to ban flights from China, the source of the virus, to massive government spending programs, the response was overwhelming. The Wall Street Journal has calculated that the spending amounted to $2.9 trillion dollars, the equivalent to 60% of total spending budgeted for fiscal year 2021. The Congress appropriated this amount of money over a short six-week period. Politicians have signaled that further stimulus packages would be forthcoming if an economic relapse occurs. The Federal Reserve implemented a similar response to the financial side of the economic challenge. The initial step lowered interest rate targets taking the fed funds rate to zero. The second step the Fed took was to purchase massive amounts of public securities to ensure liquidity across the economy. Initially, the Fed put a value on these purchases of $500 billion in treasury securities and $200 billion in government guaranteed mortgage-backed securities, but on March 23, the Fed made the purchases open-ended meaning there would be no limit as to the amount of these purchases. The program expanded to commercial mortgage-backed securities. Other support activities included backing 24 major securities’ dealers by offering loans against specific collateral, backing money market mutual funds by purchasing securities from those funds under any illiquidity problems and providing an increase in funds for the “repo” market. The amount in daily overnight repo support increased to $1 trillion: $500 billion for the one-month repo and $500 billion for the three-month repo. The Fed also instituted direct lending to corporate borrowers by buying new bond issues and providing loans. Another facility was designed to backstop the corporate debt market for up to $750 billion. In addition, the Fed will buy commercial paper from corporations at 1-2% points above the overnight lending rate. Another $600 billion will be made available through the bank’s “Main Street Loan Facility” to backstop smaller companies. Additionally, the Fed is lending directly to municipal governments through the Municipal Liquidity Facility with up to $500 billion in lending authority. A third element in the response to the crises was in the private sector where cooperation and ingenuity accelerated the potential for a solution to the virus. Businesses, individual backers and scientists have banded together to end the virus. Numerous pharmaceutical companies are working on therapy and vaccines, many of which are in initial testing phases. Businesses are quickly adapting to a more restricted world where, for example, restaurants are emphasizing take out service as a way to continue operations. When we put all of these responses together, our confidence grows that the “fight” is moving in our favor as reflected by the unexpected rally in equity markets shown in the following exhibit of the price action of the S&P 500 over the past year. In the face of growing negative economic news during April, stocks rallied back to a point where the market recovered almost half of the losses experienced during March. On Monday, March 23, the index closed at 2,237. Since then, the index has gained 30% to close at 2,912 on April 30th. Source: Federal Reserve Bank of St. Louis The Federal Reserve is also committed to keeping interest rates low until the economy regains its footing. An unfortunate effect of this low-rate policy is that it penalizes savers who opt for short-term fixed-income securities. Recently the federal government’s 10-year note yielded about 0.6%, which is insufficient to make such securities attractive. Even the long-term thirty-year government bond is yielding only 1.28%! Investors have rushed to these government securities for safety in the face of a potential financial crisis. However, the government’s commitment to minimize any financial crisis tells us that such a need may have passed, and diversifying into corporate bonds can increase current return without taking additional risk. The high-yield bond market has also suffered in the face of the economic downturn, but Fed policies have buoyed even this area, and yields remain attractive for certain high-yield mutual funds that have a conservative investment strategy. In a recent interview, Chairman Powell reiterated the Fed’s commitment to stabilize the economy until the virus is contained. The Fed has that power because it is not limited to financial constraints made to achieve that goal. We have said many times that the Fed can always “write the check” to achieve virtually any financial or liquidity goal. As we enter the warmer months of the year, there are theories that the virus may not flourish well in a high-temperature environment. We may also find that the opening up of the economy may trigger a relapse in the war against the virus. If so, we are likely to face continued market volatility. The weak oil price environment will cause continued pain in the energy sector until such a time that equilibrium in the price of oil is reached. Such an event will take some combination of further cuts in production among global producers and an economic rebound. On the other hand, lower energy prices will benefit consumers once they are in a position to resume normal usage. These uncertainties will contribute to ongoing stock market volatility. We are looking for the turning point where we gain the upper hand in one if not both of these crises. Equity markets have rallied in the face of an enormous government program to stabilize the economy until the current situation passes. For the foreseeable future, interest rates are likely to remain at or near record lows, while equities as a group may continue to move erratically based on the progress of the battle.
Update on the Economic Impact of the Coronavirus Outbreak Over the past six weeks, the world has undergone an experience that has changed the way we live and work. The coronavirus pandemic and related government mandated economic shutdowns have sacrificed economic growth for the prospect of defeating the coronavirus pandemic. The crisis was amplified when an oil price war between OPEC and Russia forced oil prices to collapse below $20 per barrel, introducing the prospect of mass bankruptcies in the energy sector. As these crises were unfolding, financial markets buckled under the pressure with the Dow Jones Industrial Average falling from a record high of 29,568.57 on February 12th to 23,949.76 on April 14th, a decline of 19%. Many stocks were hit even harder as certain sectors are more exposed to the pain of the virus and its corresponding lockdowns. An Unprecedented Government Response The government’s response to these events has been unprecedented. The Administration proposed and the Congress approved a multi-trillion-dollar spending program to offset the government’s mandated shutdown. The Federal Reserve also announced a $2.3 trillion program to back up the ability of markets to continue to function without liquidity roadblocks. Further multi-trillion-dollar spending programs are on the drawing board to help support the economy during these difficult times. Recent data on the progress of the fight against the coronavirus is encouraging. The required shutdown of non-essential businesses plus the cooperation of most Americans on the physical distancing requirements appears to be bearing fruit. The projected cases and deaths from the virus have shrunk dramatically. Daily reports by the Administration provide Americans with an update on what is happening in the battle with the virus. The next important step will be the commitment of the government to announce the relaxation of the shutdown that will gradually get workers back to work. Any relaxation will have to be gradual and mindful of the potential for additional outbreak. As there is no clear method for how to restart the economy, daily life will still be affected until either a cure or vaccine is developed. As such, it may be some time before we experience what we once knew as normal. Turbulent Markets For equity investors, this has been a troublesome period. After exuding in the longest bull market in history and with what seemed like clear sailing on the horizon, investors were blindsided, and financial markets were hit with the double whammy of the virus and an oil price collapse. The shortest bear market ensued with markets declining more than 30% in March and some individual stocks falling 80% or more. Just as quickly, the stock market recovered half of its losses even though the solution to the virus was not within reach nor was an agreement among oil producers of a substantial cut in production viable. Indeed, a breakdown in talks over oil was narrowly avoided as President Trump intervened to bring Russia and the Saudis back to the negotiating table by pledging reductions in output on behalf of Mexico. PlanMember’s Response PlanMember has made several portfolio changes to help add value during this volatile time. In the shorter-term portfolios, we added defensive positions and allocated away from specific areas that are likely to be negatively affected if the situation continues to deteriorate. In our more aggressive PlanMember Portfolios, we have generally avoided selling out of stocks as these portfolios are designed for individuals with higher risk tolerances and longer time horizons. As such, for someone with a 20-year or longer time horizon, current tumultuous market conditions may offer decent buying opportunities for someone who is dollar cost averaging. Past performance does not guarantee future results. Asset allocation or the use of an investment manager does not ensure a profit nor guarantee against loss. Small‐cap and mid‐cap investments may have additional risk including greater price volatility. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The information and opinions in this report have been prepared by the investment staff of PlanMember Securities Corporation. This report is based upon information available to the public. The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but PlanMember makes no representation as to the accuracy or completeness of such information. Securities and advisory services are offered through PlanMember Securities Corporation (PSEC), a registered broker/dealer, investment advisor and member FINRA/SIPC. Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets. International investing involves special risks such as currency fluctuation, lower liquidity, political and economic uncertainties, and differences in accounting standards. Risks of foreign investing are generally intensified for investments in emerging markets. Dollar cost averaging does not assure a profit and does not protect against loss in declining markets. You should evaluate your financial ability to continue purchases through periods of Volatile price levels before deciding to invest this way.
Price Volatility and Financial Markets Watch this video presentation from PlanMember’s Chief Investment Officer Tom Nugent, focusing on the unprecedented swings in both equity and bond prices. Nugent discusses the recent volatility in securities prices, the reasons for these rapid price changes and the solutions to such volatility. With over 51 years of experience in the investment business, Nugent zeroes in on technical factors that can exacerbate these changes and provides perspective for investors who are questioning the cause and breadth of current market volatility.
PlanMember’s Business Continuity Plan Executives at PlanMember Securities Corporation have been actively monitoring the Coronavirus developments with a focus on the health of our staff and potential impact on business operations. PlanMember is prepared to meet the unprecedented challenges posed by this pandemic and will continue to provide the level of professionalism and personalized service you have come to expect of us. At the beginning of March, we activated our Business Continuity Plan which includes protocols for infectious disease control and remote operations for essential PlanMember business functions. PlanMember remains open for business with our participants and partners. Our main office is open and safe for a reduced number of staff whose work is best performed here. All other staff members have been transitioned to remote work last week (3-20-2020) and will remain remote until further notice. Our customer service team also continues to maintain regular hours with both remote and in-office staff. Regular hours of service remain 6:00 a.m. to 5:00 p.m. PDT weekdays (except holidays) at (800) 874-6910 or via email at edelivery@planmember.com. Additionally, we have limited non-essential visitors to our office and eliminated non-essential business-related travel until further notice. We encouraged all staff members to utilize virtual meeting technology and teleconferences whenever feasible. We continue to monitor the situation and respond as necessary to the directives from our local, state and federal authorities. We are in dialogue with key vendors to assure they can provide essential services to PlanMember and our clients throughout the duration of this emergency. No matter the circumstances, PlanMember is equipped with a dedicated staff, leading-edge technology and technical skills to continue to provide exceptional service to you, our clients and our business partners. We appreciate your trust and confidence as we continue to help you meet your retirement savings needs.
FTJ Retirement Advisors Opens PlanMember Financial Center in Kansas City Brian Holland, director of Forrest T. Jones (FTJ) Retirement Advisors in Kansas City, is pleased to announce its affiliation with PlanMember Securities Corporation. As a new PlanMember Financial Center, FTJ Retirement Advisors will expand retirement and investment planning and financial education opportunities for investors, including educators and employees of nonprofit organizations and asssociations, in Kansas City and other cities in Missouri. PlanMember, with more than $11 billion in assets, specializes in the 403(b), 457(b) and 401(k) marketplace. By partnering with PlanMember as a Financial Center, established independent advisors, such as FTJ Retirement Advisors, can tap the support resources and preferred market access of a national company while maintaining their own local identity. To date, PlanMember has established nearly 40 successful Financial Centers in 20 states, with a goal of expanding to 80 nationally. Forrest T. Jones is a family-owned enterprise with more than 300 employees that provides insurance and financial planning programs to more than 80 national associations and several hundred employee groups. With more than 1.5 million members and relationships with 30 leading insurance companies, FTJ Retirement Advisors is looking forward to joining the PlanMember family. “Affiliating with PlanMember as a Financial Center is really a next step toward providing educators, non-profit organizations, associations, individuals and families with complete holistic retirement planning services,” said Holland. “We strive to provide education and guidance to all our clients, enabling them to make informed financial planning decisions that are right for their own unique situations.” “The affiliation with FTJ Retirement Advisors supports PlanMember’s plans for expanding its Financial Center business model across the country,” said Jon Ziehl, founder and CEO of PlanMember, “and we’re looking forward to a successful long-term relationship.” PlanMember is a nationally recognized broker/dealer, investment advisor and member of FINRA/SIPC, providing retirement planning to the public education and nonprofit sectors for over three decades. PlanMember delivers personalized retirement planning services and a broad selection of investment and annuity solutions. The company is headquartered in Carpinteria, California. Contact PlanMember Steven Sullivan (410) 435-4719 ssullivan@planmember.com PlanMember.com | LinkedIn
Update on the Economic Impact of the Coronavirus Outbreak By Thomas E. Nugent Executive Vice President, Chief Investment Officer PlanMember Securities Corporation Over the past six weeks, the world has undergone an experience that has changed the way we live and work. The coronavirus pandemic and related government mandated economic shutdowns have sacrificed economic growth for the prospect of defeating the coronavirus pandemic. The crisis was amplified when an oil price war between OPEC and Russia forced oil prices to collapse below $20 per barrel, introducing the prospect of mass bankruptcies in the energy sector. As these crises were unfolding, financial markets buckled under the pressure with the Dow Jones Industrial Average falling from a record high of 29,568.57 on February 12th to 23,949.76 on April 14th, a decline of 19%. Many stocks were hit even harder as certain sectors are more exposed to the pain of the virus and its corresponding lockdowns. An Unprecedented Government Response The government’s response to these events has been unprecedented. The Administration proposed and the Congress approved a multi-trillion-dollar spending program to offset the government’s mandated shutdown. The Federal Reserve also announced a $2.3 trillion program to back up the ability of markets to continue to function without liquidity roadblocks. Further multi-trillion-dollar spending programs are on the drawing board to help support the economy during these difficult times. Recent data on the progress of the fight against the coronavirus is encouraging. The required shutdown of non-essential businesses plus the cooperation of most Americans on the physical distancing requirements appears to be bearing fruit. The projected cases and deaths from the virus have shrunk dramatically. Daily reports by the Administration provide Americans with an update on what is happening in the battle with the virus. The next important step will be the commitment of the government to announce the relaxation of the shutdown that will gradually get workers back to work. Any relaxation will have to be gradual and mindful of the potential for additional outbreak. As there is no clear method for how to restart the economy, daily life will still be affected until either a cure or vaccine is developed. As such, it may be some time before we experience what we once knew as normal. Turbulent Markets For equity investors, this has been a troublesome period. After exuding in the longest bull market in history and with what seemed like clear sailing on the horizon, investors were blindsided, and financial markets were hit with the double whammy of the virus and an oil price collapse. The shortest bear market ensued with markets declining more than 30% in March and some individual stocks falling 80% or more. Just as quickly, the stock market recovered half of its losses even though the solution to the virus was not within reach nor was an agreement among oil producers of a substantial cut in production viable. Indeed, a breakdown in talks over oil was narrowly avoided as President Trump intervened to bring Russia and the Saudis back to the negotiating table by pledging reductions in output on behalf of Mexico. PlanMember’s Response PlanMember has made several portfolio changes to help add value during this volatile time. In the shorter-term portfolios, we added defensive positions and allocated away from specific areas that are likely to be negatively affected if the situation continues to deteriorate. In our more aggressive PlanMember Portfolios, we have generally avoided selling out of stocks as these portfolios are designed for individuals with higher risk tolerances and longer time horizons. As such, for someone with a 20-year or longer time horizon, current tumultuous market conditions may offer decent buying opportunities for someone who is dollar cost averaging. Past performance does not guarantee future results. Asset allocation or the use of an investment manager does not ensure a profit nor guarantee against loss. Small‐cap and mid‐cap investments may have additional risk including greater price volatility. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The information and opinions in this report have been prepared by the investment staff of PlanMember Securities Corporation. This report is based upon information available to the public. The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but PlanMember makes no representation as to the accuracy or completeness of such information. Securities and advisory services are offered through PlanMember Securities Corporation (PSEC), a registered broker/dealer, investment advisor and member FINRA/SIPC. Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets. International investing involves special risks such as currency fluctuation, lower liquidity, political and economic uncertainties, and differences in accounting standards. Risks of foreign investing are generally intensified for investments in emerging markets. Dollar cost averaging does not assure a profit and does not protect against loss in declining markets. You should evaluate your financial ability to continue purchases through periods of Volatile price levels before deciding to invest this way.
Price Volatility and Financial Markets By Thomas E. Nugent Executive Vice President, Chief Investment Officer PlanMember Securities Corporation Watch this video presentation from PlanMember’s Chief Investment Officer Tom Nugent, focusing on the unprecedented swings in both equity and bond prices. Nugent discusses the recent volatility in securities prices, the reasons for these rapid price changes and the solutions to such volatility. With over 51 years of experience in the investment business, Nugent zeroes in on technical factors that can exacerbate these changes and provides perspective for investors who are questioning the cause and breadth of current market volatility.
An Update on the Economic Environment Hello By Thomas E. Nugent Executive Vice President, Chief Investment Officer PlanMember Securities Corporation As the Coronavirus spreads across the globe, the risks to economic growth and financial market health continue to increase. Fears among investors combined with the forced mechanical selling of equity securities have depressed markets to an extraordinary degree because of a lack of buyers. Imagine if you had to sell your house by the end of today. Your selling price would likely be substantially below a realistic market price. To extend the analogy, suppose everybody in your neighborhood had to sell his or her house today. Then what would your house sell for? The equity markets are suffering from that same minute-by-minute selling pressure, exhibited by thousand-point swings on the Dow Jones Industrial Average due to virus-induced illiquidity. The bottom line is that equity markets are out of line with any valuation that is based on some balance between buyers and sellers and, until we get the virus problem under control, the volatility is likely to continue. On a more positive note, investors who rebalance on a quarterly or monthly basis may offer a short-term break from illiquidity as they will likely be purchasing stocks and selling bonds in early April. This rebalancing effect could put upward pressure on stock prices. The Coronavirus is not the only major problem challenging our current economic outlook. The collapse in oil prices is likely to undermine the structure of oil producers in the U.S., although the price decline will help consumers of gasoline and heating oil. There must be an agreement among major oil producers to curtail production so as not to further depress oil prices. A major positive is the commitment of the government to cushion the impact of the virus. Trillions of dollars of assistance will likely flow into the economy to reduce the impact of layoffs and shutdowns. Such a commitment to use total government resources is unique with the exception of the spending to conduct World War II. As we have learned from the principles of Modern Monetary Theory, there is no limit as to how much the government can spend to alleviate the disruptions caused by the virus. It simply needs to be done. The current pending legislation to spend trillions of dollars on the crisis is a first step; and we expect more will be taken. Hopefully, we won’t let political partisanship derail the chance for a resolution. The challenges being faced by every one of us are unprecedented. Yet given the amount of resources, resolve, and perseverance going into this fight, it is only a matter of time before the Virus War is won. Markets may remain volatile for the time being, but we look forward to when we all begin to see the light of victory. Past performance does not guarantee future results. Small-cap and mid-cap investments may have additional risk including greater price volatility. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The information and opinions in this report have been prepared by the investment staff of PlanMember Securities Corporation. This report is based upon information available to the public. The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but PlanMember makes no representation as to the accuracy or completeness of such information. Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets. International investing involves special risks such as currency fluctuation, lower liquidity, political and economic uncertainties, and differences in accounting standards. Risks of foreign investing are generally intensified for investments in emerging markets.