Quote of the Month
Bull markets climb a ‘wall of worry.’
– Wall Street proverb
It has been the craziest dichotomy that I’ve ever seen. The disconnect between the current state of the economy and the stock market performance has all the experts baffled. With dire economic indicators, the stock market continues to climb. However, there was some good news on the unemployment front on Friday, but none of the economists predicted that! What could be happening is that the market is climbing the proverbial “wall of worry.”
‘Wall of worry’ is the financial markets’ periodic tendency to surmount a host of negative factors and keep ascending. The markets’ ability to climb a wall of worry reflects investor confidence that these issues will be resolved at some point.
– Investopedia
Another way to look at this, from my academic background, is the stock market is one of the leading indicators of the economy as opposed to other trailing indicators such as unemployment, interest rates, and the consumer price index. The rising stock market indicates investors are believing an economic rebound is right around the corner. Is that really possible? It doesn’t matter. It’s the perception that drives human behavior and human behavior drives the market.
Hopefully, this newsletter can give some insights and help us chart a course through the all the turmoil.
Market Update
The broader-based S&P 500 Index eclipsed 3,000 by the end of May and has rebounded 36.1% (St. Louis Federal Reserve) from its March 23 low.
Meanwhile the tech-heavy NASDAQ Composite has added 38.3%, is back above 9,000, and is nearing its all-time high (Yahoo Finance).
During the financial crisis, the S&P 500 Index lost nearly 57% from its October 2007 peak to the bottom in March 2009 (St. Louis Federal Reserve). This year, in about one month, the S&P 500 Index shed 34% before hitting a near-term bottom on March 23.
The adage “stocks climb a wall of worry” has never been more appropriate amid economic devastation and an economic outlook that remains incredibly murky…
As mentioned above, the markets’ ability to climb a wall of worry reflects investor confidence that these issues will be resolved at some point. But please keep in mind that market direction once the wall of worry has been surmounted is impossible to ascertain and depends on the stage of the economic condition at that point. In other words, be aware of the potential “dead cat bounce,” as discussed in a previous newsletter.
Economically Speaking
Unemployment Rate
In April, the unemployment rate soared to a post-depression high of 14.7%. The survey of businesses by the U.S. Bureau of Labor Statistics revealed a loss of 20.5 million jobs for the month. That was the worst monthly reading since records began in 1939. Then all of a sudden, amidst a projection of 8 million more job losses, there was a gain of 2.5 million reported on June 5 for the month of May. Instead of going up, we are now at 13.3% unemployment rate.
This may suggest that paycheck protection loans are kicking in, and business re-openings are prompting a recall of furloughed workers.
Industrial Production
April’s 11.2% drop in industrial production, a metric the Federal Reserve has tracked since 1919 – is the biggest monthly decline on record.
Consumer Spending
Consumer spending in April fell 13.6%, the biggest decline ever recorded (U.S. BEA, data back to 1959).
Simply put, economic activity is falling with depression-like speed, but as shown above, the major stock market averages are in the midst of an impressive rally.
Economic Update from Lunt Capital Management, LLC
This month we the Lunt Capital Market and Economic update available to everyone. Normally reserved for Investment Management clients, we would like to make available to all because of the significance of the content. This presentation is cholk-full full of pertinent information on Covid-19, the market, and the economy. You may access it here: Lunt’s Market and Economic Review
Be on the Lookout
Right now the market is responding well, despite the poor economic situation. The outlook is very uncertain. Remember that we are currently dealing with 3 different crises:
- A medical crisis
- An economic crisis caused by a shutdown of businesses
- A systemic racial crisis
Even though the market is recovering well, for now, there are may factors that could cause another crash. Some of these factors include:
- A second wave of Covid-19
- Continued high unemployment if small businesses don’t recover
- Home mortgage defaults
- Commercial loan defaults (see ref article Wall Street’s Reckless Gamble on Bad Debt)
- The markets continue to trade at forward P/E levels not seen since the tech bubble of the early 2000s
- Despite the market exuberance, GDP growth levels are very gloomy
- Other unforeseen tragedies
The working definition of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP).
News and Updates from KFP
This Month’s Deliverables for On-Going Clients
If you are an On-Going client, check your Egnyte folder for this month’s deliverables:
- 7Twelve® Performance Update
- Market and Economic Update from Lunt Capital, LLC
- Dr. Craig Israelsen’s white paper on “Value vs Growth, a 30-year Review”
For this month, I am also making the Lunt Capital deliverable available to everyone. Click here: Lunt’s Market and Economic Review. It is very impressive and I encourage you to download and review.
We are hosting Financial Peace University!
Beginning Monday, June 15, I will be hosting a live Zoom webinar on Financial Peace University. It will start at 6:30pm and run every Monday until August 10. This is a great program for those wanting to understand and implement a get-out-of-debt strategy and begin your way to understanding personal finance. Contact me if you are interested.
We’ve added a 4th “Money Manager”
Recently, we signed an agreement with J Wilson Wealth Management, LLC as our 4th money manager! Jeremy brings over 10 years of experience in Investment Management. Jeremy’s focus is on ETF investing with Blackrock. Please contact me to have an introduction to Jeremy.
We now have 4 money managers to offer clients giving a broad array of investing options:
- Multi-asset strategic 7Twelve® portfolios through Kastler Financial Planning (fixed flat fee)
- Simple strategic portfolios through First Ascent Asset Management, LLC (fixed flat fee)
- 7Twelve® and many other retirement income portfolios through Lunt Capital Management, LLC (% AUM)
- Simple strategic Blackrock ETF portfolios through J Wilson Wealth Management, LLC (% AUM)
This Month’s Financial Planning Tips
Roth Conversions
There may never be a better time! Tax rates are still low, for now. Speak to your Financial Advisor and CPA about the best strategy for your specific situation.
Mega Roth Conversions
If you meet certain criteria, you may be able to convert a substantial amount of money into a Roth account from your company 401(k) plan. If you are a high income individual, have a 401(k) plan at work, and that plan offers in-service withdrawals, this is something to consider. Very tricky to execute, so please consult with your Financial Advisor and CPA.
Optimize your Social Security
For many people, Social Security is the hub of their retirement income. How and when to claim it properly (to maximize your income) is probably one of the most important decisions in Retirement Income Planning. If you are married, there are literally thousands of possible claiming scenarios. This is worth discussing with your Financial Advisor and having him/her run various scenarios for you. Ultimately it’s your decision, but there are many many factors to consider.
And, finally, our carry-over tip for EVERY MONTH…
Update your Retirement Plan
Retirement scenario planning is a proven regimen that Financial Planners use to navigate through profound market uncertainties. Planners that use scenario planning do not predict the future; we envision different futures – and then develop plans to succeed in each.
As the market and economic dynamics change, it is critical to update to those new parameters!
We also believe that the Bucket Strategy is a rock-solid strategy to help buffer yourself from the up and down market and economic turmoils.
Our recommended retirement bucket strategy is to:
- Define an income stream to meet your monthly bills
- Have an Emergency Fund for unexpected expenses
- Design a well diversified and properly correlated portfolio for your long-term needs, such as Long-Term Care
If you do not have a Retirement Plan from us, it is worth a 15 minute read on our philosophy here: Main Pillars of Retirement Planning.
References/Citations
Barrons article, The Stock Market is Always Right
Horsesmouth June update letter to Advisors
Lunt Capital Management, LLC Lunt’s Market and Economic Review
About Kastler Financial Planning
We are a fiduciary firm, providing fee-only, professional financial services with affordable and transparent fees. Our core purpose is to help improve your financial situation and to help you Get Retirement Ready. We do not sell financial products. We believe everyone should have access to financial advice without the pressure or bias of product sales or commissions. KastlerFinancialPlanning.com
We perform these services either as hourly, a one-time fee-only project, as on-going financial planning, or Assets Under Management (AUM), depending on your needs. Whether you live in our backyard or across the country, we aim for a pleasant client experience through our secure, all-digital Financial Planning Process.
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Kastler Financial Planning | Ortonville, MI 48462
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