Home Guides & Resources chevron_right Weekly Update Breezy Markets Face Ill Winds July 13, 2020 Table of Contents Hopeful Outcomes Meet Reality Checks Don’t Take Headlines at Face Value Podcast: Dan Wiener and Jim Lowell’s Mid-Year Assessment FPF: 2020 RMD Waivers Extended Looking Ahead Please note: This update was prepared on Friday, July 10, 2020, before the market’s close. Even as new COVID-19 cases hit single-day highs, technology stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. remained on the rise this week, pushing the NASDAQ Composite to a record close Thursday and continuing to carry the broader market on their backs. The S&P 500 is up more than 40% off its March 23 low. Through Thursday, the Dow Jones Industrial Average and the broader S&P 500 index were down 8.8% and 1.4% for the year, respectively. The MSCI EAFE index, a measure of developed foreign stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. markets, is down 10.0%. As of Thursday, the Bloomberg Barclays U.S. Aggregate BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. index’s yieldYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. stood at 1.17%, down from 2.31% at year-end. On a total return basis, the U.S. bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. market has gained 6.8% for the year. Hopeful Outcomes Meet Reality Checks On a pandemic and economic front, the picture was largely the same as last week. COVID-19 cases are on the rise in the South and West, forcing many early-to-open states to reverse course and rethink their current policies and guidance to their residents. The U.S. economy may have seen an initial rebound from the bottom of the virus-induced recession, but make no mistake; we are still in a deep recession, with a long road ahead to full recovery. On Wall Street, reopening hopes have yet to give way to reclosing realities, but that optimism is trending in the direction of worry. The market may follow suit as investors attempt to rationalize two opposing forces. On one hand, there’s stimulus from the Federal Reserve and Congress that aims to backstop and catalyze the economy and, by extension, the market. Opposing this are the unknowns of a yet-to-be-controlled pandemic, depressed corporate earnings and economic activity that remains extremely uneven at best. We’ll stay focused on the data, reasonably defensive, ever-disciplined and diversified—mindful of the facts as well as the animal spirits that affect market action. Don’t Take Headlines at Face Value With so much economic and epidemiological uncertainty, it’s natural to seek out information anywhere you can find it. But you also want to wear your skeptic’s hat when reading headlines, even from the most august sources. Take Monday’s front-page story in The Wall Street Journal’s “Business & Finance” section. The headline in the print edition read, “Allure of Health-Care StocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. Fades Following Earlier Rally.” (Online, it became, “Coronavirus Is No Cure for Health-Care Stocks.”) Source: The Wall Street Journal. We’ve been proponents of the health care sector for as long as we’ve been in business, so we were very interested to see how the author made her case. But the article didn’t pass muster; it only considered performance from a very specific weeks-long period. That’s just not enough time to make the point that a sector has taken a true long- or even short-term turn. The gist of the story: Health care stocks were among the best performers for most of the year, but trailed the market for about a month from mid-April to mid-May, so maybe they aren’t so great after all. Huh? For the year through last Thursday (the last market close prior to the article going to print), Vanguard’s Health Care ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., which tracks a U.S. health care stock index, was up 2.7%. Vanguard’s Total StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. Market Index fund, which tracks the broader U.S. market, was down 2.5%. And some active health care fund managers did even better. In short, the author not only cherry-picked the time frame, but also ignored that health care’s relative performance has actually rebounded over the past month. Demographics aren’t changing and longevity has increased in wealthier nations. Consumers in emerging countries still want and can increasingly afford better health care. New drugs and treatments are in constant development. Are some health care companies struggling today? Yes. Will some companies struggle in the post-COVID-19 world? No doubt. But that doesn’t change our long-term argument for an overweight to the health care sector in our portfolios. Podcast: Taking Stock—Dan Wiener and Jim Lowell’s Mid-Year Assessment The first half of 2020 saw record market highs before COVID-19 took its expansive human, economic and stock market toll. With volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. raging, monetary and fiscal policy provided a safety net, and some investors may be feeling that the worst of times are behind us. Is it time to throw caution to the wind and not “fight the Fed?” For this special episode of The Adviser You Can Talk To Podcast, Chairman Dan Wiener and Chief Investment Officer Jim Lowell talk about the latest medical, market and economic trends, and how they’re assessing the investment landscape in advance of flu season and the upcoming election. In this insightful conversation, Dan and Jim discuss: The impact of medical data on the economy and corporate earnings The dangers of investing on headlines The risks on their radar screens for the rest of the year Are growth stocksA stock whose issuing company is expected to grow at a significantly higher rate than the market. overvalued? Are value stocksA stock that is statistically cheap as a multiple of its earnings or book value, as compared to the overall stock market. underpriced? … and much more! Click here to listen now! *** Financial Planning Focus: IRS Extends 2020 RMDA required minimum distribution is the amount of money that must be withdrawn each year from tax-deferred retirement accounts once the beneficiary reaches retirement age (72, according to IRS rules). Relief Waivers Two weeks ago, we briefly discussed the IRS notice that offered relief to anyone who took a required minimum distribution (RMD)A required minimum distribution is the amount of money that must be withdrawn each year from tax-deferred retirement accounts once the beneficiary reaches retirement age (72, according to IRS rules). early in 2020—extending and expanding on a CARES Act waiver that gave people additional time to return that money to retirement accounts, penalty-free. Here’s a little more detail on the key provisions and some financial planning moves to consider: 2020 RMDs Deadline Extended to August 31. The CARES Act waived RMDs from qualified accounts for 2020. If you took all or a portion of your RMD early, however, you were bound by the 60-day rolloverThe process of transferring funds from one retirement account to another, typically without incurring a tax. rule, which states that you can only repay a distribution within a 60-day window. The rule was initially relaxed to allow distributions taken between February 1 and May 15 to be repaid by July 15. Now, early birds who took their RMDs in January can also repay that money by the end of August. RolloverThe process of transferring funds from one retirement account to another, typically without incurring a tax. Paradise. In a normal year, the repayments above would count as a rollover, and you are only allowed one in any 12-month period; inherited IRAA type of account in which funds can be saved and invested without being subject to tax until the account holder reaches retirement age. beneficiaries are usually not allowed rolloversThe process of transferring funds from one retirement account to another, typically without incurring a tax. at all. The new IRS notice waives those rules, regardless of whether you’ve already done a rollover in the past year or are a beneficiary of an inherited IRA. Everybody who wants a rollover can do one this year before the August 31, 2020 deadline. Or, Keep the Money. The IRS’ update and the CARES Act offer taxpayers more flexibility this year. For some readers, it may make more sense to keep the distributions you took—this is especially true if you have endured a job loss or a reduction in salary. A Good Time to Consider a Roth IRA. The IRS’ ruling also means that 2020 could be a good year to do a Roth IRA conversion, something that your RMD normally wouldn’t factor into. This year, you can instead choose to convert a portion or all of those RMD funds to Roth IRA assets and pay the taxes now (preferably at a lower rate). Future growth, earnings and distributions will then be tax-free. (For more about Roth IRAs, check out our podcast on the topic by clicking here.) With rules and legislation changing in response to the pandemic’s hardships, there’s no better time to talk to your wealth management team or a tax professional about what’s best for you right now. We’ll continue to provide details on the changes as they roll in. Please don’t hesitate to contact us with any specific questions as they apply to your situation. We’re here for you. Looking Ahead Next week brings backward-looking reports from June—small business confidence, inflation, manufacturing activity, new home construction, retail sales—as well as homebuilders’ confidence and consumer sentiment for July. As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future. About Adviser Investments Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. Please note: This update was prepared on Friday, July 10, 2020, before the market’s close. This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them. Third-party publications referenced in this article (e.g. CityWire, Barron’s, InvestmentNews, CNBC, etc.) are independent of Adviser Investments. Readers should note, that to the extent any third-party publication linked to in this piece also contains reference to any of the newsletters written by Dan Wiener or Jim Lowell, such references only pertain to the respective newsletter(s) and are not reflective of Adviser Investments’ investment recommendations or portfolio performance. Newsletters are operated independently of Adviser Investments. 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