Week 5 – Some Respite

It was another highly volatile week for stock markets, but in a welcome change, equities closed the week substantially up. The S&P 500 rose on the week 10.3%. Year to date, the index is down 21.0%, and from its February 19 peak it’s down 24.9%. 

Believe it or not, the venerable Dow Jones Industrial Average is now considered to be in a bull market, having risen more than 20% from its low the previous week. Meanwhile, by the same definition, the S&P 500 is still in a bear market. This makes no sense at all and highlights the arbitrary and sometimes silly names we assign to market periods. 

CARES Act and Fed to the Rescue 

The expected passage of a $2 trillion stimulus bill (the CARES Act) seemed to provide much of the week’s boost. The wide-ranging measure provides financial assistance to individuals. Businesses large and small, state and local governments, and certain nonprofits. The goal is to mitigate the damage that the ongoing lockdown is causing across the whole economy. The market’s rebound might also be attributable in part to portfolio rebalancing (selling bonds and buying stocks) after last week’s sharp decline. 

Another huge plus for markets this week was the Federal Reserve stepping in to support fixed income markets, especially corporate and municipal bonds. Yields on high quality bonds generally came down (and bond prices rose) throughout the week as investors regained confidence. Unquestionably, this helped stock markets, as well. 

The week’s huge jobless claims numbers shattered records (more than 3 million new claims), but markets seem to have already factored in that news the previous week. Meanwhile, the number of reported infections continues to climb, partly due to more widely available testing. The peak load for US hospitals appears at least a few days or weeks ahead. We all watch with bated breath. 

Worth Noting 

We wanted to highlight a few items of note arising from both the CARES Act and temporary government rules changes. 

  • Federal income tax returns, payments due with returns, and estimated tax payments for the first quarter of 2020 are all now due on July 15, 2020, three months later than usual. The same applies for California income tax returns. Please contact your tax advisor for further details. 
  • The CARES Act permits IRA owners who are otherwise taking a Required Minimum Distribution (RMD) to skip their RMD for 2020. This may offer potential tax benefits for some. Please call or email us if you would like to discuss. Any RMD already scheduled will take place unless you direct us otherwise. 
  • Persons adversely affected, directly or indirectly, by COVID-19 may withdraw up to $100,000 from qualified retirement plans without the usual 10% early withdrawal penalty. 
  • Persons who do not itemize deductions are nonetheless entitled to take a deduction of up to $300 for cash contributions to charity in 2020. 
  • For flyers, the requirement to present an updated drivers license (REAL ID) at airport security checks has been moved back one year to October 1, 2021. 

There are many other items in the CARES Act that may affect you. These include cash rebates for certain taxpayers, payroll tax relief, small business loans and grants, and help with student loans, just to name a few. There will certainly be ample media coverage of benefits that may apply to your situation. 

We will continue to provide these updates as market conditions warrant. Our whole team is available to you, so please call or email if we can be of service in any way. We thank you for the continued trust you place in us daily. 

The Gould Asset Management Team

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