When the COVID-19 pandemic gained steam in mid-March, many people — including those in the wealth management industry — were displaced. Fortunately, since March 16th, our team at Sound View has been able to work remotely, with two team members continuing to work in-office.
Our ability to continue supporting your financial future wouldn’t be possible without the technology that powers our team. We’re very grateful that this incredibly difficult time has not disrupted the service we provide our clients. Our team has been ready to support your financial well-being throughout this crisis, and we will continue to be here for you, your family, and your wealth.
Client Needs During This Challenging Time
While our operations have not shifted during this time, we have seen a shift when it comes to the needs and challenges of our clients. Some have expressed uncertainty about how to properly manage their portfolios in times of market volatility, others are anxious about their cash flow for the next 6-8 months, and still others are worried about supporting adult children or grandchildren.
To that end, we’ve advised and assisted a number of our clients with their IRAs. Whether that’s deferring required minimum distributions (RMDs) in accordance with new IRA rules under the SECURE Act or recontributing funds to their IRAs, we’ve helped manage those transactions. As a reminder, the deadline to roll over RMDs or recontribute assets to an IRA is August 31st; after the deadline, normal rollover and recontribution rules will likely be in effect once again. If you have any questions about RMDs, rollovers, or plan recontributions, please reach out to your team at Sound View.
Q2 Market Moves
In the span of six short weeks, U.S. equity markets went from a major bull market to a major bear market, then back to a bull market. The speed and magnitude of these shifts is truly unprecedented: it normally takes 270 days for stocks to enter a bear market, and the average bear market lasts 14 months. Since March 23rd, the markets have made an impressive turnaround, driven by three main factors: fiscal stimulus, optimism surrounding COVID-19, and money flow.
Fiscal Stimulus Measures
With the markets in freefall in March, Congress and the Federal Reserve stepped in, enacting unprecedented measures that surpassed even the response to the 2008 Financial Crisis. A key component of the fiscal policy response was the Federal Reserve providing liquidity and buying-interest within the corporate bond market; in our view, equity markets will struggle to function properly if the bond market is in distress.
Optimism Surrounding COVID-19
When COVID-19 first hit the United States in March, there was a significant amount of fear. Since then, we’ve developed a more comprehensive understanding of the virus and how to protect ourselves, and there is now less fear about COVID-19. However, the recent uptick in new cases could mean another round of stay-at-home orders. Rising case numbers — and lawmakers’ responses to them — will need to be closely monitored in the coming days and weeks.
An overwhelming majority of asset managers we’ve spoken to were holding much larger cash positions than usual in April, May, and June of this year. With interest rates so low, equities were the only attractive investment vehicles for those cash positions. This money has re-entered the stock market over the past three months, which has likely supported prices overall.
The Road Ahead
The COVID-19 pandemic and its impact on economic activity will continue to be the largest driver of market movements for the foreseeable future. In addition, there are two other areas we’ll be watching closely in the coming months:
2021 Corporate Earnings
Corporate America has been successful at getting the investment markets to focus on earnings for 2021 rather than 2020, as 2020’s earnings will be dismal for many companies. The market’s recent strength indicates that thus far, investors are not overly concerned with 2020 earnings and are comfortable looking ahead. We will find out if this trend continues here shortly, with “earnings season” kicking off on July 15th, when the major aluminum producer, Alcoa, releases its second quarter financial results.
There is a significant chance that Democrats could control both chambers of Congress and the White House after November’s elections. For our clients, the biggest impact could be a shift in tax policy that might accompany a November sweep from the Democrats. If taxes are meaningfully increased, it could have a negative impact on corporate earnings — and, by extension, the performance of U.S. equity markets — in 2021 and beyond.
The upshot is that historically, a Democrat in the White House has not been bad for the markets. In the coming months, we will be focusing on the probability of a Democrat sweep, as well as identifying companies and industries that could benefit the most. In our view, however, it’s important to remember that it doesn’t matter who wins the election as long as someone does. The uncertainty around potential outcomes is often worse (and more difficult) than any of the outcomes themselves.
The past few months have been exceedingly difficult, and during challenging periods, it’s natural for our time horizons to shorten. My favorite analogy to describe this phenomenon is the gazelle on the plains of Africa.
When things are going well, the gazelle may be thinking about their long-term survival: finding a shady spot to rest for the afternoon, food for tomorrow, water the next day. But the minute a lion shows up, the gazelle’s natural instinct is to take action — it’s no longer focused on long-term survival, but on surviving the next 30 seconds. This fight-or-flight instinct is something that all investors (regardless of experience) need to manage.
At Sound View Wealth Advisors, it’s our job to help you and your family stay focused on your long-term financial goals and objectives — especially when market uncertainty makes it difficult to do so. Now, as always, we invite you to connect with our team if you have any questions or concerns about the road ahead. We are here to support you, regardless of what comes next.
ABOUT THE AUTHOR: Kelly Bouchillon, CFP®
Kelly co-founded Sound View Wealth Advisors with the vision of creating a firm that would offer independent financial advice to clients without the biases or bureaucracy found in Wall Street banks. He serves clients by taking a planning-based approach, incorporating decades of experience and in-depth knowledge of trusts and estates.
In 1989, Kelly began his career with Merrill Lynch, where in 1994, he partnered with Emerson Ham to form the Bouchillon, Ham & Dekle Group as a way to better serve clients. This led to a 28-year tenure at Merrill Lynch. Kelly is a Certified Financial Planner™, a designation awarded by the Certified Financial Planning Board of Standards, Inc.
He is also a philanthropist and leader in the community, supporting numerous community organizations, including the Kiwanis Club of Skidaway Island, Savannah Country Day School, Savannah Philharmonic, St. Joseph Candler Foundation, Telfair Museum and Memorial Medical Center. In addition, Kelly has served as committee member for both The Landings Association and The Landings Club. An avid golfer who also enjoys boating and snow skiing, Kelly has four children and lives on Skidaway Island, Savannah, Georgia.