Finally, some good news for investors as the Dow Jones rose 12.84% for the week. On Tuesday, the index rose 11.37%, the best day in 91 years, and the fourth-best percentage move of all-time. The Dow Jones posted its first consecutive up days since February 5 and 6.
Our models continue to rebalance weekly, looking to sell expensive assets and buy inexpensive ones. This week we sold bonds and purchased real estate investment funds —the model’s trade without emotion, which is good because I would not have made this trade. The real estate sector soared 17.38% this week.
We are selling individual corporate bonds, especially companies whose balance sheets are suspect. In 2008, companies with weak financials saw the price of their bonds drop significantly, some trading to zero. Boeing and Gap are two bonds we sold this past week.
We’re taking advantage of the drop in stocks to harvest losses in taxable accounts. Tax-loss selling will allow you to realize losses today to offset gains tomorrow.
Citigroup tracks market sentiment through their Panic/Euphoria Model, and it’s reasonably accurate. It is now in panic mode, a positive sign for stocks because stocks like to climb a wall of worry, and the best time to buy stocks is when fear is high. If you wait for the “all-clear” signal, it’s too late.
Here’s how stocks, bonds, and other asset classes performed this past week.
- The S&P 500 rose 10.50%
- The NASDAQ rose 8.55%
- International rose 12.35%
- Emerging Markets rose 5.75%
- Long-Term Bonds rose 5.19%
- Gold rose 8.66%
- Oil fell 9.05%
- Chinese Stocks rose 6.20%
Our Government leaders passed the Cares Act this week, and it’s powerful. Here are the highlights.
- The IRS will issue $1,200 checks to individuals. Families with children under age 17 will receive $500 per child. The income threshold is $150,000 for married couples, $75,000 for individuals. Your payout will be reduced by $50 for every $1,000 you’re over the income limit. (Kitces & Levine)
- You can withdraw up to $100,000 from your IRA for Coronavirus-Related issues. The 10% penalty will be waived, and you can repay your IRA over three years. Your income can also be spread out over three years. (Kitces & Levine)
- The loan limit amount in 401(k) plans is now $100,000 up from $50,000. (Kitces & Levine)
- All 2019 and 2020 Required Minimum Distributions (RMD’s) from IRA’s are waived. You do not need to take a distribution from your IRA in 2020. (Kitces & Levine)
- Student loan payments are deferred until September 30, 2020 (Kitces & Levine)
- Individual small businesses may qualify for loans up to $10 million, or 2.5 times average payroll costs, to cover payroll, rent, mortgage interest, insurance, etc. (Kitces & Levine)
- The 2020 AGI limit is waived for charitable contributions. You may be able to eliminate all your 2020 tax liability through charitable donations. If you’ve never used your resources to help others, this is a great year to start. (Kitces & Levine)
Here is what Warren Buffett said about the 2008 stock market correction in the Berkshire Hathaway Annual Report: “Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21 1⁄2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years.
America has had no shortage of challenges. Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”
The shelter-in-place is challenging, but also encouraging. In my neighborhood, people are enjoying the outdoors by walking dogs, riding bikes, and hiking trails. A group of kids is painting rocks and leaving them on the sidewalks. Families have been coloring their driveways with heart-warming messages, and kids have put teddy bears in windows for a neighborhood-wide “bear hunt.” Since we might be homebound for some time, I started reading War and Peace! What books are you reading?
“Wealth isn’t primarily determined by investment performance, but by investor behavior.” ~ Nick Murray, Simple Wealth Inevitable Wealth
Have a great weekend, and keep the faith!
If you want more information, please call me at 512-922-4429.
Bill Parrott, CFP®
President and CEO
Parrott Wealth Management