We conduct all our own research, which we share in our monthly economic book, white papers, macroeconomic and security-specific reports.
As one of the most intensive users of the Bloomberg Database in the region, we clearly make self-sourced research the highest priority in order to enhance our independent approach to total wealth management.
By Paul Cantor, CFA, AIF®, CFP®
Chief Operating Officer, Principal
The purpose of this paper is to present answers to the questions:
• Does debt matter?
• Will high debt levels cause a huge financial crisis?
• Can we identify how the crisis may develop?
• What policy responses should we expect to see?
• Will this information help us better navigate portfolios through the economic fallout?
By: Paul Cantor, CFA®, AIF®, CFP™
Chief Operating Officer, Principal
In the 1975 political thriller film “Three Days of the Condor,” Robert Redford plays a CIA analyst working in a clandestine office where they endlessly read disparate books, newspapers, and magazines from around the world to discern trends, hidden meanings, and other useful information that might be buried in the noise. This paper is similarly an attempt to link a myriad of mega-trends and world events into a tapestry of potential outcomes, and the policies required to get there.
By: Paul Cantor, CFA®, AIF®, CFP™
Chief Operating Officer, Principal
I was recently asked by friends why my economic and market outlook was tinged with some concern. It was a valid question from some very intelligent non-financial professionals. The financial media is filled with positive bias as they cheer Apple becoming the first company in history to reach a $1 trillion-dollar market capitalization. Additionally, we just posted the strongest GDP growth that we have seen in years of 4.1% for the quarter. The stock markets hover at near record highs. Consumer confidence is bordering on ebullient. S&P 500 earnings are estimated to grow by nearly 23% for the quarter. Corporate managements ....
While the 1960s will always be remembered for free love and peace signs, the ‘80s for bad hair and the ‘90s for the rise of the personal computer – the 2010s may very well be remembered for something far different – record low interest rates. Low interest rates have impacted consumers and financial markets in a myriad of ways over the past decade. I will review some of those impacts, re-introduce the now famous acronym TINA and discuss whether this low interest rate era may finally be coming to an end.
One in three Americans has not saved a single penny for retirement. To achieve any measure of financial independence, saving early and investing is the key. By saving early, investors capitalize on the powerful concept of compounding returns, which allows their contributions to grow into larger amounts.
The U.S. government has spent trillions of dollars over the last few months supporting the U.S. economy. Unlike any time in history, the coordination between the executive branch, legislative branch, U.S. Treasury and Federal Reserve quickly pumped significant amounts of liquidity into the system. For many Americans, this government lifeline meant the difference between floating above water and sinking into financial ruin.
The stimulus, never meant to be permanent, allowed the economy to regain its footing post the pandemic-fueled shutdowns. While debate over the next stimulus plan rages on it is important to examine the current health of the economic system with one question in mind: what happens when the stimulus ends?
Many Americans are on the Brink of Financial Ruin
I expect another trillion dollars of stimulus is coming because without full control over the virus the negative economic impacts will linger. While the pandemic impact is widespread it is unequally distributed throughout the U.S. Some sectors are more impacted than others as are some geographic regions. While many Americans have not experienced any change to their income (some actually saw an increase!), many Americans are also days or weeks away from financial ruin. Although imperfect, government support has provided a lifeline to those most severely impacted.
What Happens When the Stimulus Ends?
Ideally, when the stimulus ends the economy will have recovered enough to stand on its own. Those Americans temporarily out of work will have returned to their (or any) jobs, reinstating regular paychecks. However, as we are all witnessing, this pandemic is not going away easily and will have continued rolling impacts on the economy. The worst may be behind us, but a return to normality may take much longer. As such, further stimulus would lengthen the lifeline and give the country more time to control the virus. Without further action those millions of Americans on the brink may fall over the edge, creating cascading negative effects on the economy.
As if 2020 did not already throw enough curveballs, the upcoming November election looks to be one of the most divisive elections in America's history. Given the situation, it is natural to expect significant market movements based on the election outcome. However, history suggests there is risk to over-emphasizing the election's importance.
Past market data supports our expectation for increased volatility over the coming months. But volatility is not one-sided; it is the absolute value of both upside and downside movement. Further, increased short-term volatility may not have any lasting impact on our long-term success, as long as we do not react irrationally. In other words, a rising tide lifts all boats, even those on the downside of a wave. To see a much deeper dive into the potential impacts of this year's election I highly recommend reading the recent research compiled by Allegiant's Senior Research Analyst, Will Geisdorf, CMT. One thing is for sure, the election will dominate conversations over the coming months.
S&P 500 Reaches New All-Time High
As we push forward through the second half of the year the S&P 500 is hitting new all-time highs once again. In the face of so much uncertainty, this seems like irrational exuberance. While that may be true, the U.S. is back into the dreaded TINA (There Is No Alternative) environment. With interest rates so low, and the absence of other reasonably attractive investment options, money will continue to find its way into the stock market. At some point the fundamentals will take over, but momentum trades like this could go on for a very long time before unwinding.
As we navigate the unprecedented events of 2020, rest assured that the shorter-term impacts on the economy and financial markets are very much a part of our long-term plans for financial success. This year it was a pandemic, but next year could present us with something completely different. Unexpected events are a normal and expected part of life. While we do not always know what the cause will be, we regularly stress test your portfolio for the temporary negative impacts from these events. Having navigated the market declines earlier this year our focus now turns to the next potential event with only one outcome in mind: your financial success.
If you would like to see more articles about the economy, financial markets, and wealth management topics, please browse our Features.
Benjamin W. Jones, CFP®, AIF®
CERTIFIED FINANCIAL PLANNER™️
President, Chief Investment Officer, Principal
At the risk of stating the obvious, 2020 has been full of surprises. As the saying goes, life is what happens to you while you’re busy making other plans. Never has this been more true than today. The world turned upside down in the first half of the year. Whatever plans we had went out the window as everyone shifted to the new reality. As dramatic as the current short-term impact is, 2020 will (hopefully) one day amount to a small blip in the history books. Blip as it may be, there will be lasting impacts on the world as our plans for the future may have permanently shifted.
As we enter the second half of the year, we now know more about the pandemic. But that doesn’t necessarily make the challenges any easier. The goal remains managing the virus without creating devastating economic impacts. Unfortunately, we still have much to learn here.
No two recessions are the same - that has never been more true than today. The U.S. has not experienced an economic decline like the one that started in March since the Great Depression. Even more, the sheer speed of the decline is unparalleled. This might seem like a negative, but it is actually a positive. The quicker the decline, the quicker the recovery can begin.
Depths of Economic Activity
Recently released data suggests economic activity bottomed in April. This makes sense as April coincided with the most stringent stay-at-home orders. As states started to reopen in May, activity picked up. From jobless claims to manufacturing PMI to non-manufacturing NMI, the rebound is occurring.
Confirmation of What We Already Know, Plus a Look Forward
This month we finally received confirmation of what we already know - U.S. economic activity has declined substantially. As I mentioned a couple of months ago, we were in a very unique position where we knew economic activity was going to decline sharply way before we could see the data to confirm it. While the data is not encouraging, it is backward-looking. Our focus is on the future.
Allegiant’s Economic Dashboard for May shows four red indicators and two green indicators. After flashing three red indicators two months ago, the Dashboard now solidly suggests we are in a recession. It will take some time for the official announcement from the National Bureau of Economic Research (NBER) but make no mistake - the quick decline of economic activity is severe.
As the novel coronavirus pandemic takes hold on the U.S., new economic data is beginning to show the sheer magnitude of the near-term impact. As utterly astonishing as some of the initial data is, we are prepared for the numbers to look even worse. Much of the data only shows a small early glimpse of the social distancing and stay-at-home orders happening across the country. Data over the next month will paint more of the picture. While the numbers may be striking, they shouldn’t be alarming.
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