Markets have been in a choppy range all month and are essentially flat since June 1st after another volatile week. Economic high frequency data continues to show a rebound in some hard hit areas of the economy. However, increasing case counts in highly populated states like California, Texas, and Florida have investors fearful of further shutdowns and a slower recovery.
Please find the topics for this weekend’s reading below. We’re available at your convenience if you’d like to set up a time to meet. Also, if you think anyone would be interested in being added to the newsletter list, please feel free to connect us.
The drumbeat of the November election is growing louder, and we have received several inquiries as to how we plan to position portfolios for whichever party wins. The author goes back 160 years to determine which political party is associated with a better market, and the results are stunning. There is so little difference between the two parties and stock market returns that it is almost immeasurable.
As it relates to the stock market (and economy), politicians take too much credit and too little blame for results under their respective administrations. Investors should completely separate political views from investment portfolios. Political views trigger heightened emotion, and heightened emotion leads to poor investment behavior. As the author states, “It’s far more important to have a grip on your own financial situation, goals, and plan than it is to predict what a certain individual’s impact on the market will be.”
This article summarizes an interesting interview with famed Professor Jeremy Siegel. Professor Siegel describes the differences between the two most recent stimulus programs of 2008 and 2020. In 2008, the liquidity injected into the markets through monetary and fiscal policy was forecast to result in high inflation and interest rates, which never materialized. He explains that during the last crisis, banks were in such bad shape that all the liquidity injected into them by the Federal Reserve never made its way into the system. They just held it in reserves. In a credit-based economy, lack of lending leads to lack of spending and lack of inflation.
In contrast, the most recent stimulus was more directly centered around supplying people, not banks, with liquidity. This was seen through $1,200 individual stimulus checks and other small business programs like the Payment Protection Program (PPP). Professor Siegel believes these programs will lead to a spending boom once the virus subsides and potentially a brief inflationary period similar to post-WWI and WWII. The author, Ben Carlson, believes this would be a best-case economic scenario going forward.
As you may be aware, the CARES Act passed in late March granted the option to suspend required minimum distributions from qualified pre-tax retirement accounts (IRAs, etc.) for 2020. However, the original rule only allowed the suspension on a prospective basis, or, if you had taken the RMD within 60 days, the option to reverse the distribution via the “60 day rollover rule.”
New guidance from the IRS allows for any RMDs taken in 2020 to be reversed, even if they were taken in early January and did not initially fall within the 60 day rollover window. The guidance allows for the reversal, so long as it occurs before August 31, 2020. If you have taken an RMD this year and would like to reverse the distribution, please give our office a call and we will help facilitate.
We hope everyone has a happy and safe weekend. Please give us a call if you have any questions.
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