By: Sean Schmid, Chief Operating Officer – Penn Investment Advisors
Weekly Update – June 15, 2020
The Week on Wall Street
Investor sentiment turned negative last week, amid an increasing number of COVID-19 cases in states where reopening has been underway as well as a subdued economic forecast from the Federal Reserve.
The Dow Jones Industrial Average dropped 5.55%, while the Standard & Poor’s 500 lost 4.78%. The Nasdaq Composite Index slipped 2.30% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, fell 3.10%.[i],[ii],[iii]
Reality Bites
The optimism that drove stock prices higher these past several weeks slipped away on reports of a jump in COVID-19 cases, which sparked worries of a second wave slowing the economic recovery. A sober forecast for the economy by the Federal Reserve further dampened investor sentiment.
The week started upbeat with “reopening” stocks, e.g., financials, transportation, retailers, travel and leisure, and industrials, leading the way higher. But the momentum was soon lost as stocks turned mixed on Tuesday and Wednesday and then moved decidedly downward, with the S&P 500 losing 5.9% on Thursday.[iv]
Amid a volatile week, big technology companies resumed their market leadership, with the NASDAQ Composite closing above 10,000 for the first time. Stocks pared their losses on Friday, but it wasn’t enough.[v]
Fed Forecasts Economic Growth and Interest Rates
On Wednesday, the Federal Reserve said that it would keep the federal funds rate near zero and maintain its monthly purchases of Treasury bonds and mortgage-backed securities.
The Fed also issued its forecasts for 2020-2022, indicating that it saw its benchmark federal funds rate remaining at zero, with inflation at 0.8% for 2020, increasing to 1.6% in 2021, then to 1.7% in 2022. Fed officials also expect the economy to shrink by 6.5% this year, with Gross Domestic Product growing 5% and 3.5% in 2021 and 2022, respectively. Their forecast for unemployment predicts a steady decline over the next 2½ years, from 9.3% by the end of 2020 to 5.5% in 2022.[vi]
THE WEEK AHEAD –
KEY ECONOMIC DATA:
Tuesday: Retail Sales. Industrial Production
Wednesday: Housing Starts
Thursday: Jobless Claims, Index of Leading Economic Indicators
Source: Econoday / Federal Reserve, June 12, 2020. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material
THE WEEK AHEAD – COMPANIES REPORTING EARNINGS:
Tuesday: Oracle (ORCL), Lennar (LEN)
Thursday: Kroger (KR)
Source: Zacks, June 12, 2020, Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
Tax Tips
A Compromise Can Be a Beautiful Thing
Sometimes taxpayers owe more money in taxes than they can afford to pay to the IRS. When this happens, you have the option to file an Offer in Compromise, which allows you to pay less than you owe. If you opt to pursue this route, here are some specific details you should know.
Affording the full debt amount. If you can afford to pay your full debt, you will, most likely, not qualify for an Offer in Compromise. Instead, you should pursue other options, such as setting up a payment plan with the IRS.
Filing all required tax materials. In order to apply for an Offer in Compromise, you must have filed all necessary tax paperwork with the IRS.
Making an initial payment toward your debt. The IRS may require you to pay an amount toward your owed taxes when you apply for Offer in Compromise. Any payments will apply to your debt.
You can find out if you qualify by using the IRS Offer in Compromise Pre-Qualifier Tool.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov[vii]
Have investment questions? Call us at 1.800.626.1027 or email us at invest@pennadvisors.com.
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Footnotes, disclosures and sources:
Investment advisory services are provided through Penn Investment Advisors, Inc. (PIA), a Registered Investment Adviser. PIA is a wholly-owned subsidiary of Penn Community Bank (Bank). Investment products, securities and services offered by PIA are not a deposit of, or obligation of, or guaranteed by the Bank, or an affiliate of the Bank, are not insured by the FDIC or any agency of the United States, the Bank, or any affiliate of the bank and involve investment risk, including the possibility of loss of principal. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
These are the views of Penn Investment Advisors, Inc., and other listed sources. This should not be construed as investment advice. Penn Investment Advisors, Inc., does not give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information. By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.
[1] The Wall Street Journal, June 12, 2020
[2] The Wall Street Journal, June 12, 2020
[3] The Wall Street Journal, June 12, 2020
[4] The Wall Street Journal, June 11, 2020
[5] CNBC, June 12, 2020
[6] CNBC, June 10, 2020
[7] IRS.gov, June 12, 2020